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Investing.com -- The Federal Reserve is likely to keep interest rates unchanged at its upcoming meeting with only minor adjustments to its statement, according to Citi. The bank believes markets will primarily focus on the Summary of Economic Projections (SEP) and Chair Powell’s press conference.
Citi Economics forecasts several changes to the Fed’s 2025 projections, including lower real GDP expectations of 1.5% (down from 1.7%), higher unemployment rate of 4.5% (up from 4.4%), and higher core PCE inflation of 3.3% (up from 2.8%). These adjustments are expected to maintain the projection of two rate cuts in 2025.
The bank notes a "bullish USD asymmetry" in its outlook, citing three key factors. Only two Federal Open Market Committee participants would need to shift their expectations from two cuts to one cut for the median 2025 projection to change. Additionally, markets are already positioned short on USD, with investors adding to these positions in recent months.
Citi expects Powell to maintain a constructive view on the U.S. economy while acknowledging that some resilient data may reflect tariff-related front-loading. The bank believes Powell will likely mention downside risks such as weakening housing data and rising claims.
Despite these risks, Citi anticipates Powell will not view them as significant enough to warrant a policy response, instead reiterating that current policy rates are in a "good place." The bank recommends using any USD squeezes as opportunities to add to USD short positions.
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