Contrary to the mainstream view on Wall Street, Citigroup maintains its "dovish" forecast, stating that seasonal adjustment issues have amplified the September non-farm payrolls data, and the employment trend will undergo a downward revision in the coming months. This will lead to the Federal Reserve cutting interest rates by 25 basis points in November, and then rejoining the 50 basis points rate cut camp in December.

Following the strong September non-farm payrolls data, the market's expectations for the Federal Reserve to cut rates within the year have been significantly reduced. Traders have withdrawn bets on a 50 basis points rate cut in November, and the expectation for the magnitude of rate cuts over the next four Federal Reserve meetings is less than 100 basis points. Some investors even believe that the Federal Reserve's monetary easing policy for the year may have already ended.

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However, Citigroup remains optimistic in its forecast. Analyst Veronica Clark stated that the September non-farm report was very strong. Considering that there is only one October non-farm report left before the November Federal Reserve meeting, and the impact of hurricanes and strikes may cause the market to "overlook" weaker employment data in October, a 25 basis points rate cut by the Federal Reserve in November is now the most likely scenario. If next week's core CPI aligns with the bank's expected growth (a 0.3% month-over-month increase), the market may even start to price in a pause in rate cuts for November.

Regarding the September data, Citigroup believes that seasonal adjustments may have amplified the figures. It was the lower turnover rate, rather than strong hiring, that boosted the employment data.

Citigroup emphasizes that in order to maintain robust employment growth and prevent the unemployment rate from rising again, the Federal Reserve needs to see an increase in labor demand (hiring).

However, over the past year, the trend of weakening labor demand in the United States has been consistent (despite significant fluctuations), which is most evident in the declining hiring rate (the hiring rate in August was at levels not seen since September 2008), and the resulting rise in the unemployment rate.

At the same time, the employment growth in September was mainly driven by the leisure and hospitality sector (+78,000) and the health services sector (+72,000). This contrasts sharply with the decline in hiring rates in these two industries and the actual decline in restaurant sales in two quarters this year. Employment in these industries typically declines after the summer.

The extremely low turnover rate shown by the JOLTS data for August indicates that the turnover rate in the first two weeks of September may have been particularly low. A low turnover rate would imply a strong seasonal adjustment increase, which may be revised in October.

Citigroup said that the most encouraging part of the September employment report was the unemployment rate falling back to 4.05%. However, there are still signs that labor demand in the household survey remains weak—unemployment duration has increased again, and the number of unemployed young workers is still rising. Therefore, a more drastic revision in employment data is expected, which will push the Federal Reserve to cut rates by 50 basis points in December.