Citigroup Inc. $C has revised its forecast for interest rate cuts by the U.S. Federal Reserve (Fed), pushing the timing of monetary easing from July to September 2025. The adjustment follows a stronger-than-expected May jobs report, which signaled resilient labor market conditions despite broader signs of economic cooling. The brokerage now anticipates three 25 basis point (bps) rate cuts — totaling 75 bps — in September, October, and December, down from its previous forecast of four cuts totaling 100 bps.
The U.S. dollar (USD) rose moderately against a basket of major currencies (DXY) in response to the revised forecast, as investors recalibrated expectations for short-term interest rates. The move by one of Wall Street’s most influential institutions underscores how sensitive rate outlooks remain to labor market indicators.
Rate Expectations Realigned: Labor Market Data Delays Fed Action
The May employment report showed that nonfarm payrolls increased more than projected, suggesting continued tightness in segments of the job market. While wage growth remained moderate, the headline numbers were sufficient to delay Citigroup’s expectations of the Fed’s policy shift.
Previously, Citigroup had priced in an initial rate cut in July, assuming a faster deterioration in labor demand. However, stronger hiring data has tempered that outlook, prompting a forecast adjustment that is now more aligned with current market-implied probabilities observed in Fed Funds futures.
Citigroup continues to expect cumulative easing of 75 basis points by the end of 2025, delivered in three consecutive meetings. This forecast assumes a gradual slowdown in economic activity and inflation remaining on a decelerating trend, though the resilience of employment data has injected greater uncertainty into the Fed’s reaction function.
Key Facts:
Previous Citigroup forecast: 4 rate cuts (100 bps), starting July
Revised forecast: 3 cuts (75 bps), starting September
May 2025 nonfarm payrolls: Exceeded market expectations
Inflation outlook: Remains subdued but secondary to labor signals
USD impact: Strengthened on reduced likelihood of imminent easing
Repricing, Dollar Gains, and Treasury Yield Adjustments
Financial markets reacted swiftly to the revised monetary outlook. The yield on the 2-year U.S. Treasury note — a barometer of Fed policy expectations — rose by 8 basis points, while the 10-year yield moved higher, albeit more modestly. The S&P 500 Index $^SPX remained range-bound, with investors parsing macroeconomic data for clarity on the Fed’s path.
In currency markets, the U.S. dollar (USD) appreciated as traders reduced bets on near-term rate cuts. The Dollar Index gained 0.4%, particularly against interest rate-sensitive pairs such as the Japanese yen (JPY) and the euro (EUR). Analysts now expect currency volatility to remain elevated ahead of the September Federal Open Market Committee (FOMC) meeting.
Key Market Reactions:
U.S. Treasury yields: 2Y ↑ 8 bps; 10Y marginally higher
USD Index: Gained 0.4% on reduced cut expectations
Fed Funds Futures: Market pricing aligns with 75 bps in cuts
S&P 500: Consolidated as investor focus shifts to September
Currency pairs: $USDJPY and $EURUSD reflect diverging rate paths
Strong Jobs Report Delays Fed Pivot, Resets Market Outlook
Citigroup’s shift in rate cut expectations underscores the dynamic nature of U.S. monetary policy forecasting in 2025. As employment data continues to defy consensus estimates, the Fed’s decision-making remains closely tethered to labor market resilience, even as inflation shows signs of subsiding.
The market repricing following the revised outlook illustrates growing caution among institutional players. While a dovish pivot is still anticipated later in the year, the timeline has clearly shifted, highlighting the Fed’s data-dependent approach. With September now emerging as the likely starting point for easing, financial markets will remain hypersensitive to each incremental data release on jobs, wages, and inflation.
