Following the release of the latest US jobs and CPI reports, Citi economist Andrew Hollenhorst suggests the data indicates a clear path for further interest rate cuts by the Federal Reserve. Hollenhorst noted that inflation was softer than last January, reflecting a continued slowdown that could see inflation annualising to approximately 2 per cent later in the year. He added that services prices are moderating as anticipated and that any strength in goods prices should diminish as tariff-related effects ease later this year. Citi is a global financial services company providing a range of banking and investment services to individuals, corporations, and institutions. They offer services such as investment banking, consumer banking, and wealth management.
Hollenhorst also highlighted that the Federal Reserve is prepared to lower rates further this year should inflation continue to cool, even if the labour market stabilises. He pointed to explicit statements made by Federal Reserve Chairman Jerome Powell during his last press conference, which should be reflected in the upcoming Federal Open Market Committee minutes. The economist observed that while the jobs numbers were technically stronger than consensus expectations, they still allow for the possibility of weaker figures later in the year due to residual seasonality that typically boosts January readings, followed by weaker numbers in the US spring and summer.
According to Hollenhorst, markets have appropriately recognised the residual seasonality present in the jobs data, as well as the cooling trend in inflation. As a result, policy rates are likely to decline further this year. He also stated that the pricing of Federal Reserve rate cuts is free to increase further as part of the general risk-off sentiment prevailing in markets. Prior to the start of trading on Tuesday (Wednesday AEDT), interest rate markets were pricing in approximately 64 basis points of cuts this year, according to Citi. The Federal Reserve (also known as the Fed) is the central bank of the United States. It conducts monetary policy, regulates banks, and maintains the stability of the financial system.
