Citi ‘increasingly convinced’ the Fed will cut rates by 50 bps in September

The U.S. economy added 142,000 new jobs in August, which was lower than the expected 160,000.

Despite this modest job growth, the unemployment rate remained nearly unchanged at 4.2%, slightly down from 4.3% in the previous month.

Average hourly earnings unexpectedly rose by 0.40% compared to the previous month, with increases seen across multiple sectors. Additionally, the average number of hours worked per week returned to 34.3, a level consistent with figures recorded from April to June.

Citi analysts have raised concerns regarding the recent jobs report, noting that the lower-than-expected job creation, along with downward revisions to past numbers and a stagnant unemployment rate, failed to indicate a recovery following the slowdown observed in July.

They commented, “The figures align with other indicators suggesting that the job market is continuing to soften, a typical sign that the U.S. economy may be sliding toward a recession.”

The analysts also mentioned that while the report does not conclusively determine the extent of any potential interest rate cuts by the Federal Reserve in September, their baseline assumption is a reduction of 50 basis points. They expressed increasing confidence that the Fed might implement multiple significant rate cuts as the job market cools off.