Citi analysts said in a note Tuesday that market expectations for Federal Reserve policy may be turning too hawkish ahead of Wednesday's decision, in which the bank expects a 25-basis-point rate hike. In its base case, Citi expects the increase to be dovish, coming with guidance pointing away from further hikes, and thinks Chair Kevin Warsh will characterize the move as a "slight adjustment" or "calibration" while suggesting no further increases may be needed if inflation appears to be heading back toward target. The bank believes parts of the Fed's updated economic projections should reinforce that impression, with the median dots likely showing just one more hike this year and cuts resuming in 2027, consistent with the view that policy rates near 4% are slightly restrictive and that the restriction should be removed as inflation eases. Citi also said core PCE inflation projections will likely be revised down from June, reflecting methodological revisions. However, the bank cautioned that the biggest driver of the overall tone, and the hardest to predict, is how Warsh talks about the hike, with the hawkish risk being that he simply emphasizes there is more "work to do" without offering near-term guidance, which markets could read as a signal that hikes are likely at both the October and December meetings, with the risk of further increases into 2027.
Citigroup Inc.Citi's own note forecasts a dovish 25bp Fed hike and warns market pricing may be too hawkish, a macro-rate call rather than a company-specific development.
CTBC Financial Holding Co Ltd