US Economics Weekly: The economy is not overheating

Research evidence excerpt

US Economics Weekly: The economy is not overheating

US Economics Weekly

26 June 2026 Citi Research

Front-end interest rates have declined from their highs after last week’s

surprisingly hawkish FOMC meeting. In contrast to market pricing, we continue to

see data and developments as pointing toward an economy that, rather than rate

hikes, is more likely to require rate cuts.

Figure 1. Oil prices have declined meaningfully Figure 2. Market is pricing in a rate hike this year

2y tsy yield WTI price cumulative pricing at each meeting LHS 06/26/26

4.3 120 market pricing policy rate RHS 06/26/26

4.2 110 33 4.0

4.1

100 28 3.9 4

3.9 90 23 3.8

% 3.8 80

18 USD/bbl bp 3.7 %

3.7 70

3.6 13

60 3.6

3.5 8

3.4 50 3.5

3.3 40

1/1/2026 2/1/2026 3/1/2026 4/1/2026 5/1/2026 6/1/2026 -2 3.4

Jul-26 Sep-26 Oct-26 Dec-26 Jan-27 Mar-27 Apr-27 Jun-27 Jul-27

© 2026 Citigroup Inc. No redistribution without Citigroup’s written permission. © 2026 Citigroup Inc. No redistribution without Citigroup’s written permission.

Source: Citi Research Source: Citi Research

Oil prices declined for a second week with Brent crude oil falling below its pre-crisis

price. The market has rapidly swung from shortage to surplus and our commodities

strategists expect lower oil prices to prevail through 2027. Gasoline, jet fuel and

other energy prices are following oil prices lower, removing the key upside risk to

inflation. Market-based inflation expectations have collapsed to pre-conflict

levels.

Figure 3. Gasoline prices should continue to decline with oil Figure 4. Inflation breakeven has declined with oil prices

Crude Oil Price Daily US Average Gasoline Prices 10y inflation breakeven WTI price

2.6 120

110 4.9

2.5

100 100

4.4 2.4

90 % 2.3 80 3.9 USD/bbl

80 2.2 $/bbl 70 $/gallon 60

3.4 2.1

70 50

2 40 2.9

50 2.4