Citi Makes Surprise Statement on Fed's Interest Rate Policy: They Expect Aggressive Cuts

Citi's Senior Global Economist Robert Sockin suggested that the Fed could make a significant rate cut of up to 125 basis points by the end of 2024.

Speaking on the Morning Brief, Sockin discussed the current state of the U.S. economy, saying that the second quarter saw faster-than-expected growth, with GDP revisions showing a 3% increase, ahead of the 2.8% forecast by economists.

Despite the positive growth data, Sockin expressed concerns about potential economic risks as the year progresses. While consumer spending remains strong and the labor market is showing resilience, he said recent data has missed expectations, indicating a possible slowdown. The Citi Economic Surprise Index, which measures the performance of economic data relative to estimates, fell sharply in the third quarter.

Sockin said the Fed is in a difficult position of balancing managing inflation and avoiding a recession. While the U.S. economy appears headed for a “soft landing,” he said the rise in the unemployment rate, currently at 4.3%, could signal a more significant downturn. That has led to discussions within Citi’s economic team about how aggressively the Fed can cut rates.

The economist suggested the Fed could start with a 50 basis point cut, then cut another 50 basis points, for a total of 125 basis points by the end of the year. But Sockin acknowledged that the Fed’s approach could be gradual, similar to cautious strategies adopted by other central banks such as the European Central Bank and the Bank of Mexico.

*This is not investment advice.