Fed could slash rates by 200 points?

The Fed could slash rates by 200 points over 8 straight meetings as the economy heads for a sharper downtrend, Citi says

Get ready for a bonanza of rate cuts from the Federal Reserve that starts in a few months and extends all the way into next summer, according to analysts at Citi Research.

In a note on Friday, the bank cited fresh signs of a slowing economy for its view that the Fed will trim rates by 25 basis points eight times, starting in September and extending to July 2025.

That will lower the benchmark rate by a whopping 200 basis points, or from 5.25%-5.5% now to 3.25%-3.5%, where they will remain for the rest of 2025, the note said.

The economy has cooled off from its “heady” pace in 2023 with inflation resuming its slowdown after some unexpected stickiness, said Citi analysts led by chief U.S. economist Andrew Hollenhorst.

But the Institute for Supply Management’s service-sector gauge, which abruptly reversed into negative territory, and the monthly jobs report, which showed unempolyment rising to 4.1%, have raised the risk of a sharper weakening of economic activity and a faster pace of rate cuts, they added.

The data along with dovish comments from Fed Chair Jerome Powell on Tuesday suggest the first rate cut will very likely come in September.

“A continued softening of activity will provoke cuts at each of the subsequent seven Fed meetings, in our base case,” Citi predicted