Citigroup: The reasons for raising interest rates have disappeared, and it is expected that the Federal Reserve will resume rate cuts in October.

BlockBeats News, July 5 — In a US Economic Weekly released on July 2, Citi Research said that the June U.S. nonfarm payroll data was clearly weaker, strongly refuting the necessity of rate hikes. Citi believes that multiple factors that had previously supported the hawkish stance, including rising oil prices, accelerating wage growth, and core PCE above target, have faded one after another, and “the rationale for a rate hike has disappeared.”

Data shows that in June, the U.S. added only 57,000 nonfarm jobs, far below expectations, and the combined revisions for the first two months were downward by 74,000. After the revisions, the average monthly growth in nonfarm payrolls over the past three months fell to about 111,000, a sharp drop from the more than 180,000 level prior to the revisions. The unemployment rate in June fell from 4.296% to 4.189%, but Citi believes this was mainly due to a decline in the labor force participation rate from 61.8% to 61.5%; if the participation rate remained unchanged, the unemployment rate would actually rise to above 4.5%.

On inflation, Citi said that multiple factors are jointly weighing down price pressure. Oil prices have fallen back to levels seen before the conflict, and the July CPI and PCE data are expected to show month-on-month declines. Further slowing in housing rents will also drag down core CPI and core PCE. In addition, revisions to the core PCE methodology will adopt a more reasonable price adjustment approach for AI-related goods. Citi estimates that after the revision, the year-on-year growth rate of core PCE could be lowered by 20 to 30 basis points, and will be reflected officially in September.

Citi keeps its baseline forecast, expecting the Federal Reserve to hold steady at the July and September FOMC meetings, make its first rate cut of 25 basis points at the October 28 meeting, and cut another 25 basis points in December, bringing the federal funds rate range to 3.0% to 3.25% by year-end. Citi also expects the Fed to cut rates three more times in 2027, with a terminal rate range of 2.75% to 3.0%.