Fed May Need to Cut Aggressively as Job Seekers Face Growing Challenges

The Federal Reserve may need to consider more substantial rate cuts in response to troubling trends in the labor market, according to a note from Citi analysts released Wednesday.

The analysis indicates a growing number of people are finding it difficult to secure jobs, which suggests that the increase in unemployment is not simply due to a larger labor supply but rather reflects weak hiring conditions.

Citi highlights that this trend, observed in a recent Conference Board survey, bears similarities to the economic climate of September 2001, a time when the U.S. was already in a recession.

The increasing challenges in job-seeking confirm that the uptick in the unemployment rate points to a softening job market instead of favorable labor supply news.

The current circumstances imply that a “hard landing” for the economy may be on the horizon, raising the likelihood of more aggressive rate cuts from the Federal Reserve.

The bank emphasizes that the data reflects a broader trend of diminishing labor demand. Citi anticipates a modest increase of 70,000 new jobs in the forthcoming payroll report for September—a decline from previous robust figures.

The analysts expressed surprise at the lack of slowdown in job growth across sectors significantly impacted by reduced activity, such as construction, leisure and hospitality, and government.

If these trends persist, Citi projects the unemployment rate could rise to approximately 4.3%, with the potential to reach 4.4% if the labor force participation rate does not fall as anticipated.

Citi maintains its expectation for a 50 basis point rate cut in November, with the possibility of more dovish policy adjustments—either additional 50 basis point cuts or a 75 basis point cut.