Citi Research: Reasons for Rate Hikes Have Disappeared, Fed Expected to Resume Cuts in October

According to Citi Research on July 2, U.S. economic data shows rate hike justifications have evaporated. June nonfarm payrolls added only 57,000 jobs, far below expectations, while prior months were revised down by 74,000. The three-month average fell to approximately 111,000 positions monthly from over 180,000 previously.

Inflation pressures are easing across multiple channels: oil prices have returned to pre-conflict levels, July CPI and PCE data are expected to decline month-over-month, and housing rents continue moderating. Citi maintains its base case forecast for the Federal Reserve to hold rates steady in July and September FOMC meetings, then cut rates by 25 basis points on October 28, with a second 25 basis point reduction in December.