Citigroup (C) now forecasts Federal Reserve interest rate cuts to begin in September and go through year-end, pushing back from its prior June-July-September timeline. Nonetheless, the Wall Street bank still expects a total of 75 basis points in cuts this year, equivalent to three 25-basis-point reductions. This shift reflects stronger-than-expected U.S. jobs data and persistent inflation.
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Why Is Citi Delaying the Timeline?
In an April 3 note, Citigroup wrote, “We continue to think signs of a weakening labor market will result in cuts later in the year. But the timing of upcoming data suggests a later start to rate cuts than we had previously been expecting.”
U.S. job growth beat forecasts in March. This was boosted by the end of a healthcare workers’ strike and warmer weather. However, risks to the job market are growing amid the ongoing U.S.-Iran war. Citigroup anticipates softer hiring will push unemployment higher this summer, paving the way for cuts.
U.S. Labor Market Surges in March
The U.S. economy added 178,000 jobs in March, significantly surpassing the consensus estimate of just 60,000. This marked a strong rebound from February’s downwardly revised 117,000 jobs (initially reported as 92,000) and January’s 125,000, amid cooling inflation and resilient consumer spending. The unemployment rate also dipped to 4.3% from 4.4% in February and came in below the estimate of 4.4%.
Looking Ahead to the April FOMC Meeting
Investors will watch the Federal Reserve’s April 7-8 meeting closely for hints. The key interest rate is expected to remain unchanged at 3.50%-3.75%. Fed Chair Jerome Powell will likely strike a cautious note. He will stress that decisions depend on data, given strong jobs and high inflation, matching Citi’s view of later rate cuts.
