In response to the latest labor market data released in the July jobs report, Citi has revised its forecast for the Federal Reserve's monetary policy. The report revealed a slower-than-expected growth in employment, prompting Citi economists to predict larger rate cuts in the coming months.

According to Citi's analysis, the U.S. economy added 114,000 jobs in July, falling short of the anticipated 175,000 jobs and even Citi's own estimate of 150,000. The increase in private employment accounted for 97,000 jobs, while government employment contributed an additional 17,000 positions.

This weaker-than-expected job growth has raised concerns among economists, suggesting that the labor market may be entering a phase of more pronounced weakening. With rising unemployment and a discernible slowdown in job creation, Citi economists anticipate that the Federal Reserve may begin implementing more substantial rate cuts.

Citi's revised forecast now includes 50 basis points (bps) rate cuts in September and November, followed by 25 bps cuts at consecutive meetings thereafter. This would lead to a terminal rate of 3-3.25% by mid-2025, resulting in an additional 25 bps of cumulative cuts compared to their previous projections.

The decision to adjust these forecasts is supported by the current policy rates, which are considered to be in restrictive territory. Additionally, the Federal Reserve's growing attention to employment further bolsters Citi's revised expectations.

Citi is not alone in revising its predictions. Other major Wall Street research players, such as Evercore ISI, have also changed their Fed forecast models. Evercore ISI is now calling for "at least three Fed cuts in 2024."

In their note, Evercore ISI highlighted that if subsequent data confirms and extends a more pronounced weakening in the labor market, including an increase in unemployment and payrolls falling below 100,000 in August, there is a realistic possibility that the first move will be a 50 bps cut in September.

As the Federal Reserve continues to closely monitor economic indicators, including job growth and unemployment rates, financial analysts are adjusting their expectations to account for potential changes in monetary policy. The impact of these adjustments on the stock market remains to be seen, but investors should closely follow the evolving forecasts to make informed decisions.

While economic uncertainties persist, AI technologies are revolutionizing the stock market. Investing.com's ProPicks, powered by advanced AI computing, have generated impressive results in 2024 alone. ProPicks' AI identified two stocks that surged over 150%, with four additional stocks that experienced leaps of over 30% and three more that climbed over 25%. Investors are now eagerly awaiting the next stock that will soar, guided by the power of AI analytics.

Overall, with Citi's revised forecast for larger rate cuts and other major financial players adjusting their predictions, the Federal Reserve's next moves will play a crucial role in shaping the economic landscape.