Citi Pushes Back Fed Cut Forecast as Warsh Drops Guidance

Citigroup pushed back its forecast for the first Federal Reserve interest rate cut, now expecting 25-basis-point reductions in October, December, and January 2027, Reuters reported Thursday. The bank had previously penciled in cuts starting in September.

Citi has been a "longstanding Fed dove" among major brokerages, the report said. The shift reflects the hawkish tone set by policymakers under new Chairman Kevin Warsh.

Other firms have moved further. Nomura and Bank of America now see a growing threat of rate hikes this year, not cuts, according to the report.

Warsh began his tenure with a wide-ranging policy review that included dropping forward guidance entirely. "I can't give you any forward guidance about what we're going to do next," he said in his first news conference, adding that the tool is not "well suited" to the current economic climate.

Deutsche Bank analysts wrote that a Fed less reliant on forward guidance "might desire to move quicker on tightening policy, creating risks of rate hikes over the coming meeting."

Some brokerages said the removal would push investors to lean more heavily on economic data and Fed commentary. JPMorgan said speeches by policymakers would "take on added importance."

Separately, a New York Fed research note supported reports of a "K-shaped economy" – a growing divide between low-income and high-income consumers on spending, earnings growth, and wealth. Rich households have benefited from a strong stock market, lower mortgage payments, and near-peak home equity. Lower-income households face high living costs, persistent inflation, and elevated interest rates.

"While not necessarily causal, the observed positive association between food insecurity and overall consumer pessimism, together with the increase in the incidence of food insecurity, especially among households at the bottom of the K-shape, point to a potential explanation for the unusually low recent levels of consumer sentiment," the researchers wrote.

For traders, the Citi revision and the Warsh guidance shift both point in the same direction: the bar for a 2026 cut just got higher. The next test comes with the July FOMC statement.