Wall Street's major banks, which insisted on a Fed rate cut in July, have surrendered! Citigroup changed its tune to September, leaving only Morgan Stanley stubborn

With the May non-farm payroll data in the United States far exceeding expectations, some of the major Wall Street banks that previously insisted on a rate cut in July have finally surrendered. Citigroup is one of them, and the bank's economists have now postponed the expected rate cut in July to September. Currently, JPMorgan Chase is the only major Wall Street bank still insisting on a rate cut in July.

After the non-farm data was released on Friday, Citigroup's Chief U.S. Economist Andrew Hollenhorst issued a report stating that the Fed is now expected to cut rates in September, with the non-farm payroll data being one of the reasons for the change in forecast.

"We are shifting our baseline expectation for the first rate cut from July to September, although the labor market and the U.S. economy both appear to be slowing, last month's 'unexpectedly strong job growth' may prompt the Fed to pause, while 'waiting for more data on activity and inflation slowdown'."

Citigroup's new forecast is for three 25 basis point rate cuts this year - in September, November, and December. Previously, the bank predicted a rate cut at each Fed policy meeting from July to December, totaling four cuts.

Among other major Wall Street banks, as of this week, at least six are predicting a rate cut in September, with at least four predicting the first cut will be in December. In late May, economists at Goldman Sachs and Nomura Securities pushed back their forecasts for the start of Fed rate cuts from July to September, partly based on comments from Fed officials indicating a higher threshold for rate cuts. For example, Fed Governor Christopher Waller said on May 21, "We need a few more months of good inflation data."

Currently, JPMorgan Chase is one of the last few major banks predicting a rate cut in July.

JPMorgan Chase's economists maintained the expectation of a rate cut in July based on April inflation data, although these data still exceed the Fed's target, but at least they are moving in the right direction. In a report on May 15, JPMorgan Chase stated, "But we may need to see further cooling in labor market activity to achieve this goal." However, JPMorgan Chase estimated that there were 150,000 new jobs added in May, far below the 272,000 reported by the Labor Department.

Another dovish view comes from State Street Global Advisors, which expects the Fed to cut rates as early as this summer. The company's Chief Investment Officer Lori Heinel said, "We believe that inflation in the United States will continue to decline, and economic activity this year will be weaker than last year."

The delay in rate cut expectations has also led to a surge in U.S. bond yields. The two-year U.S. bond yield is more sensitive to changes in Fed policy prospects than long-term bonds. After the U.S. government's May jobs report showed employment and wage growth exceeding expectations, the two-year U.S. bond yield rose by nearly 15 basis points to 4.87%. Yields on all maturities of U.S. bonds rose by at least 12 basis points "If these companies abandon the expectation of a rate cut in July, it only means that the total number of rate cuts we may see in 2024 will continue to decrease," said James Athey, portfolio manager at Marlborough Investment Management Limited. He expects the labor market conditions to deteriorate, inflation to further slow down, and this year to be favorable for bonds