Citi analysts in a note to clients on Tuesday predicted that in the upcoming Non-Farm Payroll (NFP) report, as many as 125,000 new jobs will be created and the unemployment rate will be at 4.3%.
According to Citi, "The shift from inflation to employment has occurred," which marks a shift in focus from inflation measures to employment data in determining Federal Reserve policy.
Citi's forecast suggests that job growth of 125,000, along with the unemployment rate at 4.3%, is soft enough to prompt the Federal Reserve to cut interest rates by 50 basis points.
The note indicated that if the unemployment rate fell slightly to 4.2%, the Fed might opt for a smaller reduction, by 25 basis points, although this would not change Citi's view of continued easing in the labor market and a broader economic slowdown.
The bank noted that the volatility experienced by the labor market is now as strong as seen with inflation data in recent years.
Citi noted that "a relatively small difference in Friday's jobs reading could have a big impact on Fed policy."
For example, they believe that if the unemployment rate remains at 4.3% while the number of jobs is healthier at around 175,000, the Fed is still likely to implement a rate cut of 50 basis points.
Conversely, if the number of jobs falls below 125,000 with the unemployment rate at 4.2%, larger reductions may be considered.
The bank added that broader labor market trends showed continued weakness, with slower hiring, reduced working hours, and rising unemployment.
