JPMorgan and Citi Change Their Forecasts on When the Fed Will Cut Interest Rates

Citigroup Inc. and JPMorgan Chase & Co. Economists revised their forecasts for the FED's interest rate cut. These companies, which were among the last few economists to previously predict a rate cut in July, have now changed their expectations.

Citigroup changed its forecasts after the release of stronger-than-expected employment data for May. The bank now predicts that US policymakers will make their first moves in September, while JPMorgan does not foresee any changes until November.

Andrew Hollenhorst, Citigroup's chief U.S. economist, explained the shift in a recent report. “We are shifting our base scenario for the first interest rate cut from July to September,” he said. Despite indicators of a slowing labor market and the U.S. economy, Hollenhorst believes last month's “surprisingly strong employment growth” will cause the Fed to go on hold, awaiting more data on slowing activity and inflation.

Similarly, Michael Feroli, JPMorgan's chief U.S. economist, argued in a report on Friday that the “recent acceleration in job growth” suggests it could take more than three months for the “broader” labor market weakening that the Fed says could require a rate cut to materialize.

Citigroup's new forecast calls for a three-quarter point rate cut in September, November and December this year. This is a change from four previous cut forecasts, one at each Fed policy meeting from July to December. JPMorgan revised its forecast to just one in three discounts this year, followed by one in each quarter next year.

As of this week, at least six other major Wall Street banks were predicting that the Fed would cut interest rates in September, and at least four were predicting that it would cut rates for the first time in December.

*This is not investment advice.