Citi says the Fed will deliver another 50bp cut in November

Investing.com — Citi strategists said they expect the Federal Reserve to cut rates by another 50 basis points in November, a decision that will largely depend on incoming data, especially the next monthly jobs report.

For now, jobless claims remain low, and attention is turning to the employment components of the PMI data. Core PCE inflation, due out on Friday, is also expected to keep Fed officials focused on the state of the labor market, according to Citi.

The Fed’s initial 50 basis point rate cut was described by Chair Jerome Powell as a strong indicator of the central bank’s commitment to act decisively if labor market conditions warrant further support.

“Should the unemployment rate stabilize around its current level, the Fed might choose to slow the pace of rate cuts to 25bp per meeting,” strategists noted. Still, they believe that upcoming data will likely push the Fed to continue cutting rates at a faster pace.

They project that core PCE inflation will rise just 0.18% month-over-month on Friday, implying an annualized core inflation rate of 1.95% over the past three months.

“The benign inflation backdrop would keep officials focused on the labor market,” strategists continued.

While Fed officials have been encouraged by low layoff rates and steady jobless claims, Citi points to the declining hiring rate and private payroll growth—now averaging around 90,000 jobs per month—as signs that unemployment could rise further.

With two more jobs reports scheduled before the November Federal Open Market Committee (FOMC) meeting, the central bank officials will have additional time to evaluate the softening trend in the labor market.