Citi sees Fed cutting rates by 50 bps in November

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 since 2020. 

The Fed cut its policy rate by 50 bps to a range of 4.75% to 5%, and signaled that more cuts were likely on tap. The central bank signaled that risks around its outlook for bringing down inflation and a cooling labor market were now roughly balanced. 

Fed Chair Jerome Powell said the central bank was growing increasingly confident that inflation will ease further in the coming months.

Citi said that Wednesday’s cut completed the Fed’s pivot towards addressing labor market weakness from curbing further inflation risks. 

The brokerage said that weak monthly employment reports before the Fed’s November meeting will see the central bank cut rates by 50 bps again- which was its base case. The Fed is then expected to close out the year with a 25 bps cut, bringing its total 2024 reductions to 125 bps. 

“Powell noted a number of times that today’s 50bp cut is a “commitment” to not get behind the curve which suggests the bar for further large rate reductions is very low. We continue to see risks as balanced toward a more rapid softening of labor market data and a more aggressive pace of rate cuts,” Citi analysts wrote in a Wednesday note. 

Citi described Powell as sounding “particularly cautious” on the trend of payrolls growth, stating that any further signs of weakness in the labor market were likely to draw out more dovish moves from the Fed. 

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