Citigroup traders bet on Federal Reserve holding rates steady this week

Citigroup’s short-term rates trading desk is putting real money behind a simple thesis: the Federal Reserve isn’t hiking this week. With the FOMC meeting scheduled for July 28-29, Citi is actively trading contracts designed to profit from an unchanged benchmark rate, even as swap markets assign a greater than 33% probability to a 25 basis point increase.

The setup: hawks circling, but not landing

The federal funds target range has sat at 3.50%-3.75% since the Fed’s June decision. That’s where Citi expects it to stay after this week’s meeting.

Akshay Singal, Citi’s global head of short-term interest-rate trading, has been clear about the bank’s positioning. The desk is actively leveraging contracts that pay off if rates hold steady, a bet that aligns with the broader market consensus but runs counter to the non-trivial hike probability priced into swaps.

Overall markets assign roughly a 70-80% probability to no change. The disconnect is that a meaningful minority of traders, enough to move swap pricing above 33%, believe Fed Chair Kevin Warsh and his colleagues might pull the trigger on a hike sooner than the majority expects.

The Fed’s June dot plot revealed that nine out of 18 FOMC officials project at least one rate increase by the end of 2026. Rising energy costs and a firming labor market have kept inflation concerns front and center. Under Warsh’s leadership, the Fed has removed its easing bias, a notable shift from the posture markets grew accustomed to in prior years.

The bigger picture: inflation vs. patience

The dot plot tells a story of a committee that’s split but leaning toward eventual tightening. Nine of 18 officials projecting at least one hike by year-end means that even if July passes without action, the runway for a steady-state rate environment may be shorter than markets hope.

Citi’s trade is essentially a timing bet. They’re not necessarily saying the Fed won’t hike at all this year. They’re saying it won’t happen this week. And given that nearly three-quarters of the market agrees with them, the odds are in their favor.

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