Citi sees Fed cut rates by 50 bps in November, by Investing.com

Investing.com– Citi analysts said they maintained their outlook for a 50 basis point cut by the Federal Reserve in November after the central bank cut rates by a similar margin in its first cut of 2020.

The Fed by 50 bps to a range of 4.75% to 5% and signaled that more cuts are likely on tap. The central bank signaled that the risks to its outlook for lower inflation and a cooling labor market are now roughly balanced.

Fed Chairman Jerome Powell said the central bank is becoming increasingly confident that inflation will ease further in the coming months.

Citi said Wednesday’s cut complemented the Fed’s pivot to addressing labor market weakness by reducing future inflation risks.

The brokerage said weak monthly employment reports ahead of the Fed meeting in November would see the central bank cut rates again by 50 bps – which was its base case. The Fed is then expected to close the year with a 25 bps cut, bringing total cuts in 2024 to 125 bps.

“Powell has noted several times that today’s 50bp cut is a ‘commitment’ not to get behind the curve, suggesting that the bar for further big rate cuts is very low. We continue to see risks balanced towards a faster easing of labor market data and a more aggressive pace of rate cuts,” Citi analysts wrote in a note on Wednesday.

Citi described Powell as sounding “particularly cautious” about the trend in wage growth, saying any further sign of weakness in the labor market could prompt more accommodative moves from the Fed.

Still, Powell warned that the Fed was unlikely to return to an era of ultra-low rates and that he saw a much higher neutral rate for the Fed than in the past.