Citi: Fed may cut rates more than currently expected as inflation slows

The Federal Reserve raised its target for the federal funds rate at the end of 2025 by 0.5 percentage points. Citi economist Andrew Hollenhorst believes the Fed may be in a hand-wringing situation. With price gains slowing as core PCE rose 0.1 per cent in November from a year earlier, the Fed could end up cutting rates more than currently expected. ‘In our base case scenario, a softer labour market will cause the Fed to cut rates at each of its next meetings.’ This view is at odds with market expectations that the Fed will pause its rate cuts in January. ‘But even if we're wrong, a sideways unemployment rate and slowing inflation are enough reasons to cut rates at least at every meeting other than January.’