Strong jobs data push JPMorgan, Citi to scrap July rate-cut bets

Strong jobs data push JPMorgan, Citi to scrap July rate-cut bets
Economists at the banking giants changed their tune following the surprising May employment data.
JUN 07, 2024
By  Bloomberg

Economists at Citigroup Inc. and JPMorgan Chase & Co., some of the last holdouts predicting a Federal Reserve interest-rate cut in July, have relented.

After Friday’s release of stronger-than-anticipated May employment data, Citigroup now sees US policymakers making their first move in September, while JPMorgan looks for no change until November. 

“We are shifting our base case for the first rate cut from July to September,” Andrew Hollenhorst, Citigroup’s chief US economist, said in a report Friday. While the labor market and US economy both appear to be slowing, “surprisingly strong job growth” last month will probably stay the Fed’s hand while “waiting for more data on slower activity and inflation.”

JPMorgan’s chief US economist Michael Feroli, also in a Friday report, said “the recent momentum in job growth” suggests that the “broader” labor-market weakening the Fed has said could warrant a rate cut may take more than three months to materialize.  

Citi’s new forecast is for three quarter-point rate cuts this year — in September, November and December. Previously the bank forecast four, with one at each Fed policy meeting from July to December. JPMorgan’s changed from three cuts this year to just one, followed by one per quarter next year.

Yields surged and derivatives markets priced in a smaller total amount of Fed rate cuts this year after the employment report showed that job creation and wage growth exceeded economist estimates. The cumulative amount of easing expected by traders dropped by about 10 basis points to 38 basis points. 

Among other major Wall Street banks, at least six were forecasting a Fed rate cut in September as of this week, and at least four looked for an initial cut in December.

Wall Street has been caught off guard all year by the resilience of the US economy after 11 Fed rate hikes from March 2022 to July 2023 brought the target range for the federal funds rate to 5.25% to 5.5%. At the start of the year, derivatives markets priced in at least six quarter-point rate cuts by December, and several banks had forecasts for at least five.

Those outlooks were gradually scaled back, particularly after progress toward lower inflation stalled

Fed policymakers, whose median end-2024 projection for the fed funds rate was 4.625% in December and March, responded with comments emphasizing the need for greater certainty on the inflation trend before cutting rates. Fed Governor Christopher Waller, for example, said on May 21 “several more” months of good inflation data were needed.

Latest News

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.