Citi Analysts Predict 50 Basis Point Rate Cut by Fed in September After U.S. Job Gains Revision
Citi analysts have increased the likelihood of a 50 basis point rate cut by the Federal Reserve in September, following a significant downward revision of U.S. job gains. The Bureau of Labor Statistics revised job gains downward by approximately 818,000, or about 68,000 per month from March 2023 to March 2024.
This adjustment has shifted the focus towards the unemployment rate as a key factor in future Fed policy. Citi's note highlights that this revision lowers the threshold for a 50 basis point cut in September. The run rate of monthly job growth has been boosted upward by an average of 68,000 per month.
If the August jobs report shows a gain of 170,000 jobs, the Fed and markets might interpret the true figure as closer to 102,000. This has led to two-year Treasury yields falling below 4.0% following the revision, reflecting market expectations of a more dovish Fed stance.
The final decision on a rate cut will depend on the August jobs report, due in early September. Citi emphasizes that the focus is on the unemployment rate, with the possibility of a 50 basis point cut contingent on whether unemployment does not decline significantly.
Markets will continue to monitor labor market data including jobless claims and PMI figures, which will influence Treasury yields and Fed policy expectations.
Analysis:
Citi's prediction of a 50 basis point rate cut by the Federal Reserve in September is based on a significant downward revision of U.S. job gains. This revision has shifted the focus towards the unemployment rate as a key factor in future Fed policy. The impact on Treasury markets has been notable, with yields falling below 4.0% following the revision. This indicates market expectations of a more dovish Fed stance. The final decision on a rate cut will depend on the August jobs report, with the possibility of a 50 basis point cut contingent on the unemployment rate not declining significantly. Monitoring labor market data will be crucial in determining Treasury yields and Fed policy expectations.