Citi updated its interest-rate outlook on Wednesday, delaying its forecast for the Federal Reserve's first cut of the year from March to May after the January jobs report topped expectations by a wide margin.
The U.S. economy added 130,000 jobs in January, a result well above the consensus estimate of 66,000 and higher than December's 48,000. The unemployment rate edged down to 4.3% from 4.4% in December.
In a research note, Citi economists led by Veronica Clark said the stronger-than-expected detail in the January employment figures will reinforce the view among Fed officials that the labor market has stabilized following a softer stretch in mid-2025. "All around stronger details of the January employment report will be further evidence to Fed officials that the labor market has stabilized after a weaker period in mid-2025. Most importantly, the unemployment rate fell back to 4.3% even with an increase in the labor force participation rate," they wrote.
The Citi team noted that only one monthly employment release for February will come out before the March Federal Open Market Committee meeting. "With only one monthly employment report for February released before the March FOMC meeting, there likely won’t be enough further evidence of a weakening labor market for officials to cut rates again at that meeting," the analysts said, explaining their decision to move the projected cut to May.
Despite the shift in timing, Citi maintained its central expectation for the year: a cumulative easing of at least 75 basis points. "We are still penciling in at least 75bp of rate cuts this year, but with now with cuts in May, July and September," the analysts added.
At the same time, Citi emphasized that the strong January print does not alter its broader assessment of a gradually cooling labor market and an anticipated rise in the unemployment rate in 2026. "Strong January data does not change our view that the labor market continues to gradually weaken and that the unemployment rate is still likely to climb modestly higher this year. Risks remain towards an even larger rise in unemployment if layoffs pick-up more significantly," Clark's team warned.
The report also included a downward revision to job growth for 2025: total payroll additions last year were revised to just 181,000 from a previously reported 584,000.
Looking at seasonal patterns, the Citi analysts highlighted a recurring cycle in hiring. "The familiar labor market patterns of the last few years seem to be repeating again this year - the low hiring environment creates stronger data from September through February, before likely weakening again from March through August when hiring is supposed to increase," they said. Because of that seasonality, they cautioned against over-interpreting short-term upticks. "As such, we are very cautious to interpret a pick-up in the 3-month pace of job growth as sign of durably stronger labor demand," the research note added.
The immediate market reaction to the report was muted. The jobs data initially pushed U.S. equity benchmarks higher at the open, but those gains were short-lived and the three major averages have traded mixed since the release.
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Context and implications
Citi's updated timing for rate cuts reflects short-run data dynamics and the limited information set ahead of the March FOMC meeting. The bank remains committed to an easing path this year, but the pace and timing have been adjusted to account for stronger-than-expected payrolls and a lower unemployment rate in January.