Source: Wall Street See

Contrary to the mainstream Wall Street view, Citigroup continues to adhere to a dovish forecast, stating that the seasonal adjustment issue has magnified the September non-farm data, and the employment trend in the coming months will see a downward correction. This will lead to the Fed cutting interest rates by 25 basis points in November, then returning to a 50-basis-point rate cut in December.

Following the strong September non-farm data, the market has significantly reduced expectations of a Fed rate cut in the year. Traders have canceled bets on a 50-basis-point rate cut in November, with expectations of less than 100 basis points in rate cuts for the Fed's future four meetings. Some investors even believe that the Fed's monetary easing policy for the year may have already ended.

However, Citigroup still maintains an optimistic forecast. Analyst Veronica Clark stated that the September non-farm report was very strong. Considering that there is only one October non-farm report left before the November Fed meeting, and the impact of hurricanes and strikes may cause the market to 'ignore' the weaker October employment data, it is now most likely that the Fed will cut interest rates by 25 basis points in November. If next week's core CPI is consistent with the bank's expected growth (up 0.3% month-on-month), the market may even start pricing in a pause in rate cuts in November.

However, regarding the September data, Citigroup believes that seasonal adjustments may have magnified the September data. The lower quit rate, not strong recruitment, boosted the employment figures.

Citigroup emphasizes that in order to maintain robust job growth and prevent a rise in the unemployment rate, the Fed needs to see an increase in labor demand (recruitment).

However, over the past year, the trend of weakening labor demand in the United States has been consistent (although highly volatile), which is most evident in the declining recruitment rate (August recruitment rate at the level since September 2008), and the resulting increase in the unemployment rate.

In September, the employment growth was mainly driven by the leisure and hospitality industry (+78,000) and the health services industry (+72,000). This stands in stark contrast to the decline in hiring rates in these two industries, as well as the actual restaurant sales decline in the first two quarters of this year. Employment in these industries typically declines after the summer.

The extremely low quit rate shown in the August JOLTS data (reflecting the entire month) suggests that the quit rate in the first two weeks of September may be unusually low. A low quit rate would imply strong seasonal adjustment growth, which may be revised in October.

Citi stated that the most encouraging part of the September employment report was the unemployment rate dropping to 4.05%. However, there are still signs indicating that labor demand in household surveys remains weak - the duration of unemployment is increasing again, and the number of unemployed young workers is still rising. Therefore, it is expected that employment data will undergo sharper revisions, leading the Fed to cut interest rates by 50 basis points in December.

Editor / jayden