Citi Research says reasons for rate hikes have disappeared, expects Federal Reserve to resume rate cuts in October

Citi Research stated in its US Economic Weekly released on July 2 that nonfarm payrolls in June increased by 57,000, while data for the previous two months was revised downward by a total of 74,000. The average monthly growth in nonfarm payrolls over the past three months has dropped to about 111,000, lower than the pre-revision level of 180,000, and the grounds for further rate hikes have disappeared. Citi expects the Federal Reserve to cut rates by 25 basis points for the first time at the October 28 meeting, and to cut another 25 basis points in December, bringing the federal funds rate range down to 3.0%–3.25% by year-end. AI interpretation: The sharp slowdown in nonfarm payroll growth and substantial downward revisions directly reveal a worsening imbalance between labor supply and demand. The fading employment momentum has completely closed the door to further rate hikes by the Federal Reserve. This data strengthens the reality of economic cooling, forcing monetary policy focus to shift from fighting inflation to preventing recession. The market’s early pricing of rate cuts is now supported by solid macro fundamentals.