Citi has pushed back its forecast for Federal Reserve interest rate cuts to May, citing a stronger-than-expected January jobs report. The U.S. economy added 130,000 jobs in January, significantly exceeding the consensus forecast of 66,000 and December's 48,000 reading. The unemployment rate fell to 4.3% from 4.4%, even as labor force participation increased.

Analysts had been anticipating rate cuts as early as March, but the robust employment data suggests the labor market has stabilized after weakness in mid-2025. Citi economists, led by Veronica Clark, noted that with only one more employment report before the March FOMC meeting, there likely won't be sufficient evidence of labor market deterioration to justify cuts at that meeting. The bank still expects 75 basis points of rate cuts this year, but now projects them in May, July, and September.

Despite the strong January numbers, Citi maintains its view that the labor market is gradually weakening and the unemployment rate will rise modestly throughout 2026. The bank pointed out that 2025 job growth was revised down dramatically to just 181,000 from 584,000, suggesting the familiar pattern of stronger early-year data followed by weakness later in the year. This revision reinforces Citi's caution about interpreting the recent pickup in job growth as a sign of durable labor demand recovery.