– Citi economist Veronica Clark predicts a rate cut from the Fed in June to support a weakening labor market
– Signs of weakening in the job market can be seen in sectors like manufacturing
– The Fed has raised interest rates over the past two years, leading to a risk of a recession, and is now considering looser monetary policy to combat weak labor market conditions
Citi economist Veronica Clark believes the Federal Reserve will likely issue its first rate cut in June to support a weakening labor market. Signs of weakness have been observed in sectors like manufacturing, despite strong job growth earlier in the year. The US added 303,000 payrolls in the last month, but Clark predicts that growth may slow down later in 2024. The unemployment rate has also increased slightly in recent months, reaching a 2-year high of 3.9% in February.
Over the past two years, the Federal Reserve has raised interest rates by 525 basis points to control inflation, but this has increased the risk of a potential recession. Clark anticipates looser Fed policy, although investors have adjusted their outlook for rate cuts based on a higher-than-expected inflation report in March. Markets are currently pricing in only one or two rate cuts by December, down from initial projections of up to seven cuts at the beginning of the year.
While Fed officials have suggested that interest rates should remain higher for longer to ensure inflation returns to the 2% target, Clark remains confident in the possibility of rate cuts. The uncertainty around inflation and the labor market has caused fluctuations in investor expectations and market reactions to Fed signals, with some expecting a rate cut in July if the labor market continues to weaken.