Citi Economist Sees Fed Rate Hike as 'One and Done' With Fed Funds Rate Peaking Near 4.75-5%

The Quick Take

• Citi economist Andrew Hollenhorst projects the Fed will raise rates once more and then pause, with the terminal rate near 4.75-5%.
• The US economy is showing resilience, but inflation remaining above target justifies one additional hike before a sustained pause.
• Citi's base case signals no imminent rate cuts, positioning fixed income markets for an extended plateau in borrowing costs.

Citi economist Andrew Hollenhorst is staking out a measured hawkish-then-pause view on the Federal Reserve's trajectory, projecting the FOMC will deliver one final rate hike before entering an extended hold period. With the Fed funds rate peaking near 4.75%-5%, Hollenhorst's thesis rests on a dual-track assessment: the US economy is sufficiently resilient to absorb another hike without triggering a hard landing, but inflation—while moderating—remains above the 2% target in a way that precludes any near-term pivot to easing. This 'one and done' framing has meaningful implications for Treasury yield curves and credit spreads across asset classes.

Markets pricing a 'one and done' scenario tend to behave constructively for longer-duration assets once the terminal rate is confirmed. If Hollenhorst's projection proves accurate, the 10-year Treasury yield may find a ceiling, providing relief to rate-sensitive sectors including REITs, utilities, and investment-grade credit. Peer institutions including Goldman Sachs, JPMorgan, and Morgan Stanley have their own rate-path models; Citi's view being on the more dovish end of the distribution could mean markets rally on any confirmation of a pause. Investment-grade bond spreads and the high-yield credit index are the most direct beneficiaries of rate certainty.

The key macro variables that could invalidate the 'one and done' thesis include a resurgence in core PCE above 3.5%, a surprise acceleration in wage growth, or AI-driven capex keeping goods inflation elevated. Conversely, any sharp deterioration in labor markets or credit conditions could force the Fed toward cuts ahead of Hollenhorst's timeline. Watch the September dot plot for the number of FOMC members seeing another hike in 2026 versus those in hold mode—this distribution will determine whether Citi's thesis becomes consensus or outlier positioning over the coming quarter.

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