Citi Adjusts Fed Forecast After Disappointing Jobs Report, Predicts More Rate Cuts Ahead
Citi economists have revised their forecast for the Federal Reserve's monetary policy after a slower-than-expected growth in employment was reported in the July jobs report. They now predict 50 basis points rate cuts in September and November, followed by 25 basis points cuts at consecutive meetings to reach a terminal rate of 3-3.25% by mid-2025. This is 25 basis points more of cumulative cuts than previously expected.
The U.S. economy added 114,000 jobs in July, missing the anticipated 175,000 jobs and Citi's estimate of 150,000. Private employment saw an increase of 97,000 jobs, while government employment added 17,000 positions. Citi's analysis suggests that the labor market may be heading towards a more pronounced weakening, leading to larger rate cuts by the Fed.
With current policy rates considered restrictive and Fed officials focusing more on employment, Citi's revised expectations are supported. Other major Wall Street research firms, like Evercore ISI, are also adjusting their Fed forecast models. Evercore ISI is calling for at least three Fed cuts in 2024.
The major US indices dropped over 2% on today's data, reflecting the market's reaction to the employment report.
Analysis:
The revised Fed forecast by Citi and other research firms indicates a potential economic slowdown and the likelihood of more rate cuts by the Federal Reserve. This can affect various aspects of the economy, such as borrowing costs, investment decisions, and overall market sentiment. Investors should pay attention to these developments as they can have implications for their portfolios and financial planning.
