Will the Federal Reserve cut interest rates again this year? Only one investment bank on Wall Street still "insists": Citigroup.

Robust employment data has completely shifted the market towards expectations of rate hikes, but Citi economists countertrend to firmly stick to their forecast for rate cuts, becoming the loneliest voice on Wall Street.

May's non-farm payroll data exceeded all expectations, triggering a dramatic selloff in the bond market. The interest rate swap market has fully priced in a single Fed rate hike this year. Against this backdrop, among major Wall Street investment banks, almost all institutions have abandoned predictions for rate cuts in 2026, and some have even shifted to forecasting rate hikes—while Citi Group still insists that there will be three rate cuts this year, virtually isolated across Wall Street.

On June 6, Bloomberg reported that Citi’s Chief US Economist Andrew Hollenhorst said Friday that the strong employment report would make Fed officials focus “hawkishly on upside inflation risks, not downside employment risks” at the June 16-17 meeting. However, he predicts the labor market will weaken over the next three months, when the market will “reprice the possibility of rate cuts rather than rate hikes." Citi maintains its forecast that the Fed will cut rates by 25 basis points each in September, October, and December.

This forecast stands in sharp contrast to the current direction of the market. The bond market has been battered—2-year US Treasury yields soared 15 basis points in a single week, and the interest rate swap market now shows December rate hike odds fully priced in, with October hike odds around 60%.

Employment Data Beats Expectations, Market Fully Shifts Towards Rate Hikes

According to a Wallstreetcn article, non-farm payrolls increased by 172,000 in May, beating every economist’s forecast in Bloomberg's survey and marking the biggest three-month gain in over two years. This data became the last straw that crushed expectations for rate cuts and directly ignited a massive bond market selloff.

The interest rate swap market reacted swiftly and dramatically. Traders have fully priced in a 25 basis point Fed rate hike in December, and October hike odds are around 60%.

Short-term yields, most sensitive to interest rates, took the hardest hit—2-year Treasury yields rose 15 basis points in a week, while 30-year yields only went up 3 basis points, notably flattening the yield curve. 30-year Treasury yields returned above 5%.

BlackRock Senior Portfolio Manager Jeffrey Rosenberg said, "The issue is: Will the Fed get ahead of market pricing, or will the market push the Fed? At the moment, it’s the latter."

Brandywine Global Investment Management Portfolio Manager Tracy Chen noted the employment data "shows the labor market is on the mend and inflation should be the Fed’s main focus."

She warned that as inflation approaches the unemployment rate level, "the Fed may already be lagging behind the curve."

Wall Street's Mass Retreat, Citi Alone Holds the Rate Cut Position

At the start of the year, most large investment banks on Wall Street predicted the Fed would cut rates in 2026, though most forecasted only two cuts. However, following the Iran war pushing up oil prices, persistent inflation, a resilient job market, and US stock benchmarks hitting record highs, these institutions have gradually abandoned their rate cut forecasts.

Currently, among major Wall Street banks, only Citi still predicts the Fed will cut rates this year, while the others have not only retracted their rate cut forecasts but some have moved further to expect rate hikes.

According to chasing the wind trading desk news, Goldman Sachs dropped its forecast for rate cuts this year in its latest report, arguing that tariffs, high oil prices, and AI demand will keep core PCE inflation above 3% in 2026, leaving the Fed with no urgency to cut rates.

Meanwhile, JPMorgan has incorporated a 2027 rate hike in its base forecast since January; BNP Paribas updated its prediction after Friday's jobs data, expecting the Fed to raise rates three times in a row starting December 2026.

Facing the market’s full shift, Citi’s determination is not without reason. Andrew Hollenhorst’s core view is about timing: he believes the current strong jobs data will not persist, and the labor market will clearly soften over the next three months, reopening the window for rate cuts.

Since last December, Citi has maintained its prediction for three rate cuts this year, though as the situation evolves, the timing for the first cut has been pushed from January to September.

Notably, Citi stood out last year for its accurate Fed forecasts—when competitors predicted the Fed would stand pat, Citi accurately foresaw three 25 basis point cuts. This track record may be why its current forecasts still draw market attention.

For now, most banks that scrapped their rate cut forecasts for 2026 still expect the Fed to pivot to easing in 2027, but more institutions—especially after the April policy meeting—have started to characterize the next move as a hike, not a cut.

The gap between Citi and the mainstream market is now not just about timing, but a fundamental difference on the direction of Fed policy.

Analysts believe the core of the current market disagreement lies in how the Fed will balance its dual pressures.

On one hand, the job market remains strong and inflation risks are high; some officials at the April policy meeting openly opposed retaining a “dovish bias” in the statement—at that time, three policymakers objected to including two-way risks for jobs and inflation in the statement.

On the other hand, Citi believes the strength in jobs data is temporary; once the labor market cools, the Fed's policy balance will swing back towards employment.

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