On December 21, the Federal Reserve raised the federal funds Intrerest Rate target by the end of 2025 by 0.5 percentage points. Citi economist Andrew Horenhorst believes that the Fed may be caught off guard. As the core PCE pumped 0.1% m/m in November, the price pump is slowing and the Fed could eventually cut rates more than currently expected. "In our base case, a weaker labor market would cause the Fed to cut interest rates at each of its next meetings." This view is at odds with market expectations that the Fed will pause interest rate cuts in January. "But even if we're wrong, the unemployment sideways and slowing inflation are enough to justify a rate cut at at least every meeting except January."
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Citi: Inflation slows down, the Fed's rate cut may exceed current expectations
On December 21, the Federal Reserve raised the federal funds Intrerest Rate target by the end of 2025 by 0.5 percentage points. Citi economist Andrew Horenhorst believes that the Fed may be caught off guard. As the core PCE pumped 0.1% m/m in November, the price pump is slowing and the Fed could eventually cut rates more than currently expected. "In our base case, a weaker labor market would cause the Fed to cut interest rates at each of its next meetings." This view is at odds with market expectations that the Fed will pause interest rate cuts in January. "But even if we're wrong, the unemployment sideways and slowing inflation are enough to justify a rate cut at at least every meeting except January."