US Economics Weekly: Penciled-in hikes remain unlikely

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US Economics Weekly: Penciled-in hikes remain unlikely

US Economics Weekly

18 June 2026 Citi Research

We and markets had expected a hawkish Fed Summary of Economic Projections

(SEP). But 9 officials advocating for rate hikes was well above our and market

expectations. Front-end Treasury yields had been falling over the last week mainly

in sympathy with lower oil prices but moved higher again after the FOMC meeting.

About 37bp of rate hikes are now priced-in over the remainder of the year.

Figure 1. Markets pricing a more hawkish Fed Figure 2. Two-year Treasury yields have stayed elevated

despite lower oil prices

Market pricing of policy rate 2y tsy yield WTI price

4.2 4.3 120

4.1 4.2 110

4 4.1

% 3.9 4

3.8 3.9 90

3.7 % 3.8 80 USD/bbl

3.6 3.7 70

3.6

3.5

Before statement After statement After press conference 3.4 50

3.3 40

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

© 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

In contrast to Fed official “dots” and market pricing, we see rate cuts as more likely

than hikes. In our base case, the Fed returns to cutting rates in October with 25bp

cuts in October, December and January. Chair Warsh described dots showing hikes

as reflecting relatively low conviction. That’s consistent with the fact that no official

dissented in favor of hikes. Also, even amongst those who want to hike in 2026,

most Fed officials expect that rates would be moving lower again in 2027. Rather

than a commitment to hike rates, higher “dots” appear to be more of a way to

message vigilance on inflation and provide a marginal tightening of monetary

policy without actually engaging in rate hikes.