(Bloomberg) — Citigroup Inc.’s traders are betting on three half-point interest-rate cuts from the Federal Reserve this year, a wager that outpaces both the market and the view of the bank’s economists.
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The bank’s short-term interest-rate trading desk says the Fed will ease policy aggressively if it sees a soft labor market. Their wager compares to about 100 basis points of easing priced by markets for the year and is a step further than Citi economists, who since Aug. 2 forecast half-point reductions in September and November and a quarter-point move in December.
The view that the Fed will kick off its easing cycle on Sept. 18 with a large cut has been gaining traction in recent days amid concerns the US economy is stalling. Swaps currently imply a roughly one-in-three chance of a half-point move this month and investors will scan the US employment report due later today to balance those bets.
“This Fed does not take baby steps – they showed no hesitation on the way up in 2022 and won’t show any on the way down either,” said Akshay Singal, Citi’s global head of short-term interest rate trading. “If today’s jobs numbers disappoint, the Fed is likely to cut 50bps – not only in September but in November and December too.”
The data Friday is expected to show a tick lower in the unemployment rate and a moderate pickup in the pace of job growth, with the median projection in a Bloomberg survey showing a 165,000 gain in August payrolls.
“Powell made it clear at Jackson Hole that the focus is squarely on the labor market,” said Singal, a 16-year veteran at the bank who oversees a global team of 35 traders. The US bank’s currency-trading division is one of the world’s largest, operating in 130 currencies across 80 countries.
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