Citigroup has released a research note indicating that after the Federal Reserve raised interest rates by 25 basis points, it anticipates a more moderate pace of core inflation on a month-over-month basis in the coming months. This development could surprise Fed officials, and with no expectation of a significant acceleration in economic growth, the bank projects the Fed will maintain its current rate stance in October.

According to the report, unlike the description of the labor market provided by Chair Warsh, recent hiring growth has been modest, and the unemployment rate remains low only due to a rapid decline in labor force participation. This does not necessarily signal an acceleration in labor demand, the bank noted.

Citigroup expects the Fed to await additional data following the October meeting to assess the impact of the 25-basis-point rate hike, subsequently opting to hold rates steady again in December. By that point, a series of more moderate inflation readings should offer sufficient evidence that price pressures are easing, supporting the case for another pause.

As inflation continues to cool, Citigroup forecasts the Fed will resume rate cuts in June 2027.