Market Analysis

According to Citi analysts, the Federal Reserve might implement a 125-basis point rate cut over its remaining three monetary policy meetings this year, following the latest nonfarm payrolls data.

In a recent client note, the analysts suggested that it would not be surprising if the Fed reduced rates by 25 basis points at its meeting on September 17-18, followed by two cuts of 50 basis points each in November and December.

The analysts anticipate a total of 125 basis points in cuts for the rest of the year, slightly exceeding the approximately 110 basis points currently priced in.

This outlook comes amid growing investor expectations that the Fed will lower borrowing costs from a 23-year high of 5.25% to 5.5%, following a weaker-than-expected jobs report on Friday. The report revealed that the US economy added 142,000 jobs last month, an increase from the downwardly revised 89,000 in July but below the 164,000 forecasted by economists, who had anticipated an uptick from the initial July figure of 114,000.

The unemployment rate stood at 4.2%, down from 4.3% in July, which matched estimates. Additional data showed that private employers hired the fewest workers since 2021 in August and job openings fell to a 3.5-year low in July.

Citi analysts noted that the slowdown in job growth to levels typically seen around recessions suggests a continued rise in the unemployment rate, potentially accelerating further.

As of Monday morning, investors assigned a 73% probability to a 25-basis point rate cut, according to the CME Group’s FedWatch Tool, while the likelihood of a 50-basis point reduction was 27%, having briefly exceeded 50% immediately after the jobs data was released.

Fed Governor Christopher Waller stated on Friday that it is time for the Fed to lower rates but remained open to discussions on the extent and pace of these cuts.

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