economy

Citi Economist Signals Terminal Rate as Fed Tightening Cycle Exhausts

Citi's chief US economist says current data lack momentum to justify further Fed rate increases, suggesting policy normalization is nearly complete.

By Piggy PressSep 16, 20262 min read 4 new words

In simple terms

Conviction among major bank economists that tightening is nearly complete reshapes fixed-income and equity risk premiums, influences borrowing costs, and signals potential relief from the cost-of-capital squeeze of the past year.

Andrew Hollenhorst, chief US economist at Citi, has joined the growing chorus of Street consensus arguing the Federal Reserve's hiking cycle has run its course. According to Bloomberg remarks, Hollenhorst contends that macroeconomic momentum—across labor, inflation, and growth metrics—no longer supports incremental tightening. His view, predicated on one final rate increase followed by a pause, reflects the market's increasingly hawkish repricing of the Fed's terminal rate and forward rate path.

The stance carries implications for fixed-income valuations, near-term mortgage spreads, and equity volatility. Should the Fed indeed reach its terminal rate and enter a hold pattern, it would arrest the recent tightening impulse that has pressured equities and credit spreads while stabilizing yield curves. For savers and borrowers alike, the transition signals an inflection: after 18 months of rising funding costs, rate expectations now skew toward stability and eventual easing, reshaping the calculus for duration, leverage, and refinancing decisions.

Fun fact

The Fed raised rates from near-zero levels in March 2022 to above 5% by mid-2023—one of the fastest tightening cycles in decades. A 'terminal rate' scenario means the Fed stops and holds, rather than continuing to hike.

Economy

Source: Bloomberg Markets