Citi Research expresses doubts about the necessity of aggressive Federal Reserve rate hikes currently priced in by the markets. This opinion was voiced in September 2026, when the bank's analysts forecast global inflation at 3.5% for this year. The Federal Reserve raised rates in September, which Citi associates with a strong economy and inflation exceeding the target level. However, the team led by Chief Economist Nathan Sheets argues that there are less compelling grounds for further aggressive monetary policy tightening.
Citi notes that the price of Brent crude oil remains around $105 per barrel, leading to a revision of the global inflation forecast, raising it by nearly a full percentage point above the initial estimate. Meanwhile, diesel prices have risen nearly 50% more than crude oil prices, and gasoline prices – about 20% more. There is also an increase in core inflation, which excludes food and energy. Citi has raised its forecasts for many major economies by about 50 basis points since February. Nevertheless, long-term inflation expectations remain stable, which according to Citi indicates investor confidence in central banks.
Citi highlights that out of 27 monitored central banks, 20 now have a higher rate forecast compared to February. During this period, 10-year government bond yields in many countries have increased by 60-100 basis points. One contributing factor is the rise in the neutral rate, which neither stimulates nor slows economic growth, now at 3.2%. Meanwhile, in Asia, Citi expects the Bank of Japan to raise rates three more times by the end of 2027, bringing levels to 2%. Analysts also noted that amid rising investments in artificial intelligence, there is a flow of spending through technology supply chains in South Korea, Taiwan, and China. Citi assesses the fight against inflation as achievable but not complete, emphasizing that keeping oil prices at $100 could lead to high inflation risks and weak growth.
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