JPMorgan and Citigroup Abandon July Rate Cut Forecasts!

Key Points:

• After Friday’s robust jobs report, JPMorgan and Citigroup dropped their forecasts for a July rate cut.
• Most experts anticipate one or two Fed rate cuts in September or December.
• Better-than-expected job growth suggests the economy remains strong, delaying immediate rate cuts.

JPMorgan and Citigroup have revised their economic outlooks and are ditching prior views of a July cut for the Federal Reserve.

This is in the wake of the release of the robust jobs report last Friday, which has led to many experts re-calibrating their expectations for monetary policy change.

Data released last week showed job growth was much stronger than expected, a sign of a labour market far more resilient than had been thought. As such, most sell-side economists and professional Fed watchers are pushing back their respective expectations of a rate cut to much later in the year. The consensus now suggests one or two rate cuts from the Federal Reserve in either September or December.

JPMorgan and Citigroup Revise Forecasts

The stronger jobs report muddled the calculus for Fed officials. The labour market remains tight, and wage growth is not breaking out. The Fed would like both factors, but the strong job growth in June decreases the immediate need.

JPMorgan and Citigroup join a larger trend among banks in re-assessing their outlooks in response to the most recent economic indicators. Both banks have pushed back expectations for rate cuts, which is in line with the view that the Fed will likely stand pat to gather more data before enacting substantial policy changes.

The scope for rate cuts later this year is on the table. Many analysts still feel that if economic conditions change, such as a slowdown in growth or signs of increased tensions on trade, the Fed might still move to cut rates to support the economy. Now, the focus is on economic figures and Fed meetings, and investors will seek further clues regarding the central bank’s intentions.