Citigroup warns: Worsening employment exacerbates the risk of a "hard landing" in the United States, with a 50 basis point rate cut possible in November

As more and more people are forced to join the "unemployment army," the pessimistic prospect of a "hard landing" for the U.S. economy becomes increasingly clear.

In a report released on Thursday, Citigroup analysts including Andrew Hollenhorst pointed out that the proportion of people feeling "difficult to find jobs" is on the rise, a trend similar to the situation in September 2001 when the U.S. economy had already entered a recession.

Even worse, Citigroup believes that the rise in the unemployment rate is not due to an increase in labor supply, but rather due to a weak hiring market, indicating that the U.S. economy may face the risk of a "hard landing" and could lead the Federal Reserve to take more aggressive rate cuts.

Previously, most Wall Street investment banks believed that the increase in the U.S. unemployment rate was mainly due to an increase in labor supply, considering it to be a temporary phenomenon not to be feared.

This view has been strongly opposed by Citigroup. The Hollenhorst team pointed out that most of the newly unemployed people in household surveys are workers who were previously employed but later laid off, and as job opportunities decrease, the weakness in the labor market may further intensify.

The first non-farm payroll report after the significant rate cut by the Federal Reserve will be released next Friday. Citigroup expects:

Non-farm payrolls in September to increase by only 70,000, half of the consensus expectation (140,000) and August data (142,000);

The unemployment rate to rebound from 4.2% in August to 4.3%, with even a risk of rising to 4.4%;

The report also points out that even in sectors that previously showed strong performance, labor demand is beginning to weaken, which is expected to further push up the unemployment rate.

Given the expected accelerated softening of the labor market, Citigroup believes that the Federal Reserve will adopt a more aggressive easing policy later this year, with a possible 50 basis point rate cut in November. The market has already priced in expectations of more than 75 basis points of rate cuts later this year.

The Hollenhorst team wrote:

As the Federal Reserve is facing a rapidly weakening labor market, we continue to expect more aggressive easing policies. We expect a 50 basis point rate cut in November, with asymmetric risks tilted towards more accommodative policies (more 50 basis point rate cuts or a one-time 75 basis point rate cut)