Citi: If the job market continues to be sluggish, the Federal Reserve may cut interest rates by 125 basis points before the end of the year

The Zhitong Finance App learned that Citibank senior economist Robert Sockin (Robert Sockin) said that in a situation where employment is sluggish, the Fed's interest rate cut may exceed what the market currently expects. Sockin said that Citi expects the Federal Reserve to cut interest rates by 125 basis points by the end of this year.

He said, “Our US team believes the Federal Reserve will start at 50 basis points and then drop by 50 basis points. As a result, they can actually get 125 basis points of interest rate cut this year.” He hinted that the Federal Reserve will cut interest rates by another 25 basis points at the December meeting.

Sockin said the bank's predictions are based on changing labor market conditions and rising unemployment. “The rate of increase in unemployment remains a cause for concern. So from a risk management perspective, this could cause the Federal Reserve to be more aggressive in its initial actions, especially if they think the risk of a sharp economic slowdown will be high.”

The US unemployment rate unexpectedly rose in July, rising from 4.1% in June to 4.3%. The number of people applying for unemployment benefits has declined in recent weeks, but not by much. According to data from the US Department of Labor, the number of jobless claims fell to 231,000 at the beginning of last week, below the annual high of 250,000 at the end of July.

Sockin said that if unemployment data continues to weaken, the Federal Reserve's interest rate cuts will be particularly aggressive. He said when talking about the Federal Reserve. , “We will wait and see the results of the next employment report. I think if the unemployment rate starts to rise now, it will be difficult for them not to take more aggressive action.”

According to the CME FedWatch tool, investors expect to cut interest rates by 25 basis points in September, and the chance of cutting interest rates by 50 basis points is low. At the US Federal Reserve's Jackson Hole meeting last week, Federal Reserve Chairman Jerome Powell said that the Federal Reserve is preparing to cut interest rates in September.

He said, “Now is the time for policy adjustments.” “The way forward is clear. The timing and pace of interest rate cuts will depend on upcoming data, changing prospects, and risk balance.”

He said that while seeking loose monetary policy, the Federal Reserve will continue to focus on its dual mission — a 2% inflation target and stimulating employment.