Citi's interest rate strategist said that the Federal Reserve should pause its rate-cutting actions, which differs from the opinions of the bank's economists. The latter still insists that the Federal Reserve will cut rates by 50 basis points in December, after others on Wall Street have already abandoned similar calls.
Citi strategists Jabaz Mathai and Alejandra Vazquez said in a report on November 22, 'We believe that unless the employment data for December is weak, the Federal Reserve should pause its easing policy,' referring to the November non-farm report scheduled for release on December 6.
Although Citi's strategists suggested the Federal Reserve should stand pat, they wrote, 'This is a dovish Federal Reserve, and the threshold for skipping a rate cut is very high.'
Meanwhile, Citi's economists still insist that the Federal Reserve will cut rates by 50 basis points in December, although they acknowledge that this possibility has diminished.
Citi economists Andrew Hollenhorst and Veronica Clark pointed out in a report this month that while weak November employment data would allow the Federal Reserve to cut rates by 50 basis points, if the U.S. unemployment rate remains unchanged at 4.1% rather than rising, a 25 basis point cut is more likely.
The Federal Reserve cut rates by 50 basis points on September 18, when there was a divergence on Wall Street over whether policymakers would choose to cut rates by 25 basis points for the first time in years. When the Federal Reserve cut rates by 25 basis points again on November 7, citing signs of resilience in the economy, economists at Bank of America and JPMorgan had already abandoned their prediction of another 50 basis point cut this year.
Bond investors have generally reduced their bets on the extent of monetary easing by the Federal Reserve next year. In addition to strong performance in the U.S. economy and stock market, Trump's victory in the presidential election on November 5 also stimulated investor expectations of a possible resurgence in inflation.
The market believes the likelihood of a Federal Reserve rate cut in December is less than 50%.
Overnight index swap contracts (OIS) related to next year's Federal Reserve meetings currently price in a rate cut of about 73 basis points by the Federal Reserve over the next 12 months, down to around 3.86%. Just at the beginning of October, the expected rate was still below 3%.
Citi's economists expect that the November employment report will show fewer than 150,000 new jobs, while the median forecast from a Bloomberg survey is 220,000. They stated that for the Federal Reserve to pause rate cuts in December, at least 300,000 new jobs would need to be added, and the November core consumer price index would need to rise at least 0.35% month-on-month.
Article forwarded from: Jinshi Data.
