US Economics: The Daily Update – Jobs report important for Fed’s next move

Research evidence excerpt

US Economics: The Daily Update – Jobs report important for Fed’s next move

US Economics

02 July 2026 Citi Research

Our view that the Fed’s next move will be a cut is premised on a reassessment of

the risks to the outlook with concern about the rising downside risk to employment

and diminishing concern regarding upside risk to inflation. In 2024 and 2025 labor

market data softened over the summer months. We expect a similar pattern this

year.

A meager 25k payrolls increase is below consensus, but we are on-consensus for a

4.3% unemployment rate. Given uncertainty about the pace at which the labor

force is growing, the unemployment rate will ultimately be a better judge of how

tight labor markets are. Over the last two years the unemployment rate has trended

higher as wage growth has trended lower – in our view a clear sign of looser labor

markets. But the participation rate has been falling and has a tendency to drop in

June, making risks around unemployment in this report two sided.

in our projections softer labor market data over the next few months would raise

concerns about downside risk to employment. Meanwhile cooler monthly core

inflation readings and significant downward revisions to core PCE in September

would reduce upside risk to inflation.

Chair Warsh was true to his "no forward guidance" policy and provided few if any

clues to future policy yesterday at Sintra. Rather than hawkish we would

characterize him as largely silent on market relevant topics. He did mention that

upside inflation risks have diminished over the last four weeks. That should be a

relatively uncontroversial point given the decline in oil prices. But still interesting as

markets moved to price a more hawkish policy path over the same period.

Key data today:

8:30 AM