Citi sees the NFP coming in at 125,000, prompting a 50bp rate cut from Fed

Investing.com — Citi analysts said in a note to clients on Tuesday that they project, for the upcoming Non-Farm Payroll (NFP), 125,000 new jobs and an unemployment rate of 4.3%.

According to Citi, “The pivot from inflation to jobs is complete,” signaling a shift in focus from inflation metrics to employment data in determining Federal Reserve policy.

Citi’s projection suggests that a job growth of 125,000, combined with an unemployment rate of 4.3%, would be sufficiently soft to prompt the Federal Reserve to cut interest rates by 50 basis points.

The note indicates that if the unemployment rate drops slightly to 4.2%, the Fed might opt for a smaller, 25 basis point cut, though this would not alter Citi’s outlook for a continued loosening in the labor market and a broader economic slowdown.

The bank says that the volatility surrounding the labor market has become as pronounced as that seen with inflation data in recent years.

Citi states that “relatively small differences in Friday’s jobs reading could materially affect Fed policy.”

For instance, they believe that if the unemployment rate holds steady at 4.3% while payrolls are healthier at around 175,000, the Fed is still likely to implement a 50 basis point rate cut.

Conversely, if payrolls fall below 125,000 with a 4.2% unemployment rate, a larger cut could be on the table.

The bank adds that broader labor market trends indicate a steady weakening, with slowing hiring, declining hours worked, and rising unemployment.

“We know from past cycles that once this cycle begins it has always progressed to a US recession,” says Citi. “The jobs report Friday as well as JOLTS on Wednesday will help us assess whether this progression continued.”