Citigroup predicts a "dovish surprise" from the Federal Reserve is brewing: core inflation nearing 2%is key

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⚡️Citigroup predicts a "dovish surprise" from the Federal Reserve is brewing: core inflation nearing 2%is key

BlockBeats reported that,October 9, Citigroup believes that if core PCE short-term growth continues to approach 2%on an annualized basis,September the tightening path after rate hikes could change. The key issue is whether the further rate hikes originally expected by the Federal Reserve will still occur, rather than an immediate shift to rate cuts. Citigroup economist Andrew Hollenhorst said in a report that the U.S. economy is not overheating: "There has never been a strong case for rate hikes."September The meeting minutes showed that at least some officials likewise did not view the economy as clearly overheated, but agreed to raise rates for risk-management reasons amid upside risks to inflation. This means that if underlying inflation continues to cool,September the precautionary rationale for rate hikes could quickly weaken. Most officials currently still expect that another rate hike may occur before year-end, but the minutes did not show October urgency for consecutive rate hikes."

Citigroup is focused on core PCE month-over-month rather than the year-over-year figure, which remains elevated:August core PCE rose 0.2%，July revised to 0.1%，August year-over-year, 3.0%. If it remains annualized at approximately 2%for several consecutive months, it should be regarded as inflation falling at the "sufficient pace" required by the Federal Reserve. Citigroup is also cautious about the transmission of energy shocks to core inflation, believing that companies have not yet broadly passed higher energy costs through to core prices. The baseline scenario expects core inflation to remain low over the next 4 months and points out that September core inflation faces downside risks. The so-called "dovish surprise" is more likely to mean that the rate-hike cycle ends earlier than indicated by the dot plot and market expectations, rather than a rapid shift to rate cuts. Federal Reserve Chair Waller has not yet clearly defined the standard for a "sufficient pace"; a core PCE annualized rate of approximately 2%for several consecutive months could serve as a reasonable reference.

Original link https://m.theblockbeats.info/flash/370918

Key points

Citigroup believes that if core PCE short-term growth remains close to 2%on an annualized basis,September the tightening path after rate hikes could change.
Citigroup economist Andrew Hollenhorst said that the U.S. economy is not overheating.
August core PCE rose month over month 0.2%，July revised to 0.1%，August rose year over year 3.0%。
Citigroup believes that if core PCE remains annualized at approximately 2%for several consecutive months, it can be regarded as inflation falling at the pace required by the Federal Reserve.
Most Federal Reserve officials still expect that another rate hike may occur before year-end, but the meeting minutes did not show October urgency for consecutive rate hikes.
Citigroup's baseline scenario expects core inflation to remain low over the next 4 months and points out that September core inflation faces downside risks.

AI-assisted interpretation

The following is analysis, separate from reported facts. Verify important claims independently.

Citigroup is focused on core PCE the pace of change in recent months, rather than solely on the still-elevated year-over-year figure. If core inflation continues to decline at an annualized pace close to 2%, the rationale for the Federal Reserve to continue raising rates could weaken. The "dovish surprise" here mainly refers to rate hikes ending earlier, not an immediate rate cut.

Why it matters to readers

This will affect market assessments of the Federal Reserve's subsequent rate hikes,USD, U.S. Treasury yields, and risk assets, but the actual outcome will still depend on subsequent inflation data and statements from Federal Reserve officials.

core PCE is one of the inflation indicators used to measure changes in U.S. consumer prices. An annualized rate close to 2%means that, based on the recent pace, inflation is approaching the pace of decline required by the Federal Reserve; however, this does not mean that the Federal Reserve has decided to stop raising rates.

Risks and unknowns

The original Citigroup report was not provided in the evidence; the current content comes from media accounts of the report.
core PCE whether it will remain close to 2%on an annualized basis for several consecutive months has not been confirmed.
Whether energy costs will pass through to core prices remains uncertain.
The evidence does not confirm whether the Federal Reserve will continue raising rates or when the rate-hike cycle will end.

Citigroup predicts a "dovish surprise" from the Federal Reserve is brewing: core inflation nearing 2%is key

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