Citi Delays Fed Rate Cut to May After Strong January Jobs Report
Citi said on Wednesday that it now expects the Federal Reserve to begin cutting interest rates in May instead of March, following a stronger-than-expected January jobs report.
January Nonfarm Payrolls Beat Forecasts
The U.S. economy added 130,000 jobs in January, well above the consensus estimate of 66,000 and higher than December 2025’s revised total of 48,000. The unemployment rate also declined to 4.3% from 4.4%.
The latest data arrives at a time when the broader labor market has shown mixed signals. Economists have described the current environment as a “no-hire, no-fire” phase, where hiring has slowed but layoffs remain elevated.
According to Citi analysts led by Veronica Clark, the stronger details in the January employment report suggest that the labor market has stabilized after weakness seen in mid-2025. Notably, the drop in the unemployment rate occurred alongside an increase in labor force participation.
Why Citi Now Sees a May Rate Cut
Citi believes that with only one additional employment report scheduled before the March Federal Open Market Committee (FOMC) meeting, policymakers are unlikely to see enough evidence of labor market weakness to justify a rate cut at that time.
As a result, the bank now expects the Fed to deliver rate cuts in May, July, and September, totaling at least 75 basis points this year.
However, Citi emphasized that the strong January data does not alter its broader outlook for a gradually cooling labor market. Analysts still anticipate a modest rise in the unemployment rate later this year and into 2026. They also warned that risks remain skewed toward a sharper increase in unemployment if layoffs accelerate.
2025 Job Growth Revised Lower
A closer look at the nonfarm payrolls report revealed that overall job creation in 2025 was weaker than previously reported. Annual job growth was revised down to 181,000 from 584,000.
Citi noted that familiar seasonal labor patterns may be repeating. Stronger job data typically appears from September through February, followed by softer conditions from March through August. Therefore, the firm remains cautious about interpreting recent improvements as a sign of sustained labor demand.
Market Reaction
Wall Street initially opened higher following the jobs report, but gains faded as the session progressed, leaving major U.S. indexes trading mixed.
Investors tracking the broader market often use exchange-traded funds linked to the S&P 500, including SPDR® S&P 500® ETF Trust (SPY), Vanguard S&P 500 ETF (VOO), and iShares Core S&P 500 ETF (IVV).
Overall, Citi’s updated outlook reflects confidence in near-term labor market stability, while still anticipating gradual economic cooling and eventual Federal Reserve rate cuts later this year.
