Citi: The Fed may pause rate hikes in October, but another 25-basis-point increase remains possible in December

What comes next for the rate path after a pause in October?

Citi expects the Fed to hold rates steady at its October meeting, but expects two or three committee members to advocate a hike.
The bank’s base case is a 25-basis-point hike in December as the final increase of this cycle, followed by rate cuts starting in mid-2027. The market pricing shown in the report, by contrast, does not price in another hike during 2026.

Citi expects Hammack and Logan to dissent in favor of a hike. Kashkari may join them, but he could also accept the pause and be prepared to support a hike in December.
Citi believes Chair Warsh may reiterate that the committee has removed some policy accommodation, signaling that there is room for further hikes.

With no new Summary of Economic Projections, policy guidance or rate action expected at this meeting, Citi believes Warsh’s remarks could still move markets. It is particularly worth watching whether he comments on recent stock-market volatility, rising concerns about AI and falling long-term interest rates.
These changes could all be viewed as signs that previous hikes are having a restrictive effect. But Citi believes it may be too early for Warsh to turn dovish and suggest that tighter financial conditions mean fewer hikes are needed.