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VT 
Citigroup anticipates that the Federal Reserve will implement 75 basis points of rate cuts this year. They expect reductions of 25 basis points each in September, October, and December.
This forecast contrasts with market predictions, which currently factor in approximately 46 basis points of cuts by year-end, with no reductions expected during the summer. Citigroup’s perspective is influenced by the outlook after the recent US jobs report.
Citigroup’s Interest Rate Outlook
In January and March 2026, Citigroup foresees additional cuts of 25 basis points each. Meanwhile, they have increased their S&P 500 year-end target to 6,300, up from a previous target of 5,800.
What the existing part of the article is pointing to is a widening difference between what one major investment bank believes could happen with US interest rates and what traders are currently pricing into futures markets. Citigroup is predicting interest rates will begin to come down as soon as September, with a total of 75 basis points in reductions before the end of the year. That stands in contrast to what’s currently implied across various interest rate instruments, where there’s a much more modest adjustment expected—possibly only around 46 basis points by January.
The revision comes in the wake of a strong labour market report from the United States, which, while robust on the surface, may signal underlying moderation rather than overheating. Some of the softer elements within wage growth or labour force participation might be where the change in tone originates. We’ve seen this kind of nuance affect rate expectations before, particularly when headline numbers mask more subtle shifts underneath.
Notably, the forecast is also supported by an upward revision of the year-end target for the S&P 500. Here the team has lifted its expectations from 5,800 to 6,300, a move that would not typically accompany a view that the central bank is concerned about inflation running too hot. The twin assumptions of lower rates and stronger equity valuations suggest a belief that inflation risks are receding enough to give policy-makers room to support activity, rather than constrain it further.
Market Implications and Opportunities
Looking ahead at the first quarter of 2026, two more rate reductions are pencilled in. That would take the cumulative adjustment since September 2024 up to 125 basis points. If another large institution or even a few key data releases were to align with this schedule, that could push futures pricing closer to that scenario. Until then, the dislocation between the forecast and prevailing market beliefs creates short-term opportunity, particularly when it comes to positioning around forward rate agreements or options on short-term interest rates.
What this tells us, from a strategy standpoint, is fairly straightforward. When an institution publicly outlines a sequence of rate reductions that diverge from consensus—and backs this with increased forecasts for equity market performance—it implies not just confidence in disinflation, but also faith in policy accommodation bearing fruit without spurring fresh volatility.
One of the more responsive areas to watch in the coming weeks will be rate-sensitive curves, such as SOFR or Eurodollar futures. We will want to keep an eye on relative steepening between late-2024 and mid-2026 contracts, where realignment might begin if others start to warm to earlier policy moves. It shifts focus toward expressions that don’t rely purely on direction, but rather on timing—something where convexity-based products can offer cleaner entry points.
While several macro catalysts such as CPI figures, core PCE releases, and initial claims data will continue to test these views, the job now is to compare belief versus pricing. That gap is where asymmetric opportunity grows more visible. Especially if one expects terminal policy settings to settle lower—and sooner—than consensus still allows.
