Federal Reserve Rate Cuts

Investing.com — The Federal Reserve may respond to recent nonfarm payroll figures by implementing a total of 125 basis points in cuts across its remaining monetary policy meetings this year, according to analysts from Citi.

In a note to clients, Citi analysts indicated they would “not be surprised” if the Fed slashed rates by 25 basis points during its meeting on September 17-18, followed by two 50-basis point reductions in November and December.

The analysts stated, “In either case, we expect 125 basis points of cuts over the remainder of the year, slightly more than the about 110 basis points priced in.”

These comments arise as investors are nearly certain the Fed will lower borrowing costs from a 23-year high of 5.25% to 5.5% after a weaker-than-expected jobs report released on Friday. The report revealed that the US economy added 142,000 jobs last month, an increase from a heavily revised figure of 89,000 jobs in July. Economists had predicted an increase of 164,000, up from July’s initial mark of 114,000.

Additionally, the report showed the US unemployment rate has fallen to 4.2% from July’s 4.3%, which aligned with estimates.

Other indicators prior to the Labor Department’s report indicated that US private employers hired the fewest workers since 2021 in August, and job openings dropped to a 3.5-year low in July.

Citi analysts noted, “Job growth has slowed to rates usually seen only around recessions and suggests the unemployment rate will continue to rise – likely at an accelerating pace.”

On Monday morning, investors assigned a 73% probability to the Fed cutting rates by 25 basis points, according to the CME Group’s FedWatch Tool, while the likelihood of a 50-basis point cut stood at 27%, after previously exceeding 50% following the jobs data release.

Fed Governor Christopher Waller stated on Friday that “the time has come” for rate decreases but remained open to the extent and pace of such cuts.