Citibank interest rate strategists said that the Federal Reserve should suspend interest rate cuts, and there is a disagreement with Citi's own economists' predictions. After others on Wall Street had long since abandoned the proposal to cut interest rates by 50 basis points, Citigroup economists continued to stick to this forecast.

Citibank strategists Jabaz Mathai and Alejandra Vazquez said in a November 22 report: “We think the Federal Reserve should stop easing unless the December employment data is weak. Even if the number of new jobs is weak, it can be argued that other labor market data shows that the labor market is flexible, such as the number of people applying for unemployment benefits.” They are referring to the US November Non-Farm Payroll Report, which is due to be released on December 6.

Citigroup strategists suggest that investors prepare for the Fed to suspend interest rate cuts next month through overnight index swap (OIS) interest rates corresponding to the Fed's December interest rate decision. They first touted the deal on November 5, when the interest rate was 4.404%, and since then it has climbed to around 4.46%. At this level, the probability that the Federal Reserve is expected to cut interest rates by 25 basis points is slightly less than 50%.

Meanwhile, Citigroup economists insist that the Federal Reserve will cut interest rates by 50 basis points in December, while admitting that this possibility has weakened. Citigroup economists Andrew Hollenhorst and Veronica Clark said in this month's report that although weak November non-farm payrolls data would allow the Fed to cut interest rates by 50 basis points, if$US - Unemployment Rate (USUER.EC)$Stabilizing at 4.1% rather than rising, it is more likely that interest rates will be cut by 25 basis points.

The Federal Reserve cut interest rates by 50 basis points in September. At the time, Wall Street was in deep disagreement over whether policymakers would choose to cut interest rates by 25 basis points or not. On November 7, as signs of economic recovery appeared, the Federal Reserve cut interest rates by another 25 basis points, while economists at Bank of America and J.P. Morgan Chase have abandoned expectations of cutting interest rates by another 50 basis points this year.

Bond investors have generally lowered their bets on the extent of the Federal Reserve's easing next year. In addition to the strong performance of the US economy and stock market, November 5$Nittoku (6145.JP)$Trump's election as president has also raised bets that inflation may accelerate again. The OIS contract relating to next year's Federal Reserve meeting predicts that the Federal Reserve will cut interest rates by about 73 basis points in the next 12 months, to a level of around 3.86%; at the beginning of October, the expected terminal interest rate is less than 3%.

Citigroup economists expect the November non-farm payrolls report to show less than 0.15 million new jobs, while economists' median forecast is 0.22 million. They said that if the Federal Reserve were to suspend interest rate hikes in December, the number of employed people would need to increase by at least 0.3 million people, and the core consumer price index would rise at least 0.35% in November.

Editor/Danial