Citi Analysts Predict 50 Basis Point Rate Cut by Fed in September Due to Revised Job Gains
In a recent note, Citi analysts have raised the likelihood of a 50 basis point rate cut by the Federal Reserve in September after a significant downward revision of U.S. job gains. The Bureau of Labor Statistics (BLS) revised job gains from March 2023 to March 2024 downward by approximately 818,000, or about 68,000 per month. This adjustment has shifted the focus towards the unemployment rate as a key factor in future Fed policy.
Citi's note points out that this downward revision has lowered 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, meaning that the true figure of job gains may be lower than reported. The impact on Treasury markets has been significant, with two-year Treasury yields dropping below 4.0% following the revision.
Citi suggests that the drop in yields reflects market expectations of a more dovish Fed stance. The bar for a 50 basis point cut is now lower, making such a move more likely if the unemployment rate continues to rise. The final decision will depend on the August jobs report, set to be released in early September.
The focus is now squarely on the unemployment rate, with the possibility of a 50 basis point cut contingent on whether unemployment does not decline significantly. Markets will be closely monitoring further labor market data, including jobless claims and PMI figures, which will influence Treasury yields and Fed policy expectations.
In conclusion, investors should keep an eye on upcoming economic data releases and Fed announcements as they can have a significant impact on market trends and investment decisions. The potential for a rate cut could provide opportunities for investors to adjust their portfolios accordingly.