Citi Predicts ‘Goldilocks’ Scenario with Fed Rate Cuts by 2025

Citi’s report projects a ‘Goldilocks’ scenario for stocks, anticipating five Federal Reserve rate cuts in 2025 spearheaded by Scott Chronert’s strategic guidance towards U.S. equities and high-yield bonds.

This prediction influences market allocations favoring risk assets, suggesting potential rallies in equity and crypto markets, impacting financial strategies globally.

Main Content

Introduction

Citi has released a forecast anticipating a ‘Goldilocks’ scenario for equities. This scenario follows the projection of five U.S. Federal Reserve rate cuts by 2025. The playbook is primarily shaped by Scott Chronert.

Scott Chronert, the U.S. Equity Strategist at Citi, highlights a barbell strategy focusing on U.S. equities and high-yield bonds. Chronert suggests moving toward small- and mid-cap equities as Fed easing continues.

“Now, as you go further down the Fed easing path, the cyclical bias begins to take on a different perspective. In this soft landing Goldilocks scenario, that’s where you can begin to go down into small- and mid-cap on the premise that you’re going to get more of an earnings recovery into 2026 as we get a little bit more Fed stimulus relative to the past two years of let’s call it earnings recession.”

U.S. Equities and Bonds

The anticipated rate cuts could lead to a pivot in institutional flows towards U.S. equities and high-yield bonds. This aligns with strategies seeking to benefit from lower rates, enhancing returns, particularly in small- and mid-cap stocks.

Citi’s current stance suggests a favorable outlook for specific market segments, although the cryptocurrency sector sees no direct guarantees. Previous rate-cut cycles have historically boosted risk assets, including BTC and ETH.

“Our view all year has been we want to be barbelled between growth as our leading call with a cyclical bias.” Are US interest rate cuts on the horizon?

Historical Context

Historically, Fed rate cuts have corresponded with equity market highs, often resulting in gains. This was true for 90% of cases without recession, affecting the S&P 500 and risk assets positively.

The potential financial implications for crypto could reflect past risk-on periods. Increased liquidity generally favors high-beta assets such as DeFi protocols. Analysts speculate on capital inflow to BTC and ETH amid renewed Fed stimulus.

Conclusion

The forecasted scenario by Citi positions the U.S. economy for potential growth, supported by strategic rate cuts and careful market positioning. As institutional interest aligns with these strategies, the outcome could be favorable for several asset classes, indicating a promising path for future economic stability and growth.