Economic outlook: A hard landing is coming, and the central bank can’t stop it

The consensus last year was that the US economy was headed for a recession, but that hasn’t happened. The consensus this year is that we will have a soft landing, where the economy slows down but does not lead to a recession. That could be wrong too.

Doubling down on his contrarian view, said Citi Chief US Economist Andrew Hollenhorst Bloomberg TV Thursday That he sees a hard landing. In fact, inflation and the labor market will weaken enough to cut benchmark rates four times this year — far more than the one or two cuts Wall Street expects.

The Labor Department’s payrolls report the next day showed the economy added 175,000 jobs in April, down sharply from a blockbuster increase of 315,000 in March and below the 233,000 gain economists had forecast.

On Thursday, Hollenhorst said other data signaled weakness in the labor market, including surveys of consumers and businesses that found jobs are becoming harder to come by, companies are less interested in hiring, and employees are more concerned about keeping their jobs.

Of course, data in recent weeks has given mixed signals on the economy. The latest Employment Cost Index rose more than expected, indicating a strong job market. Meanwhile, the first-quarter GDP report showed growth cooled more sharply than expected. But that was due to a wide trade deficit and slow inventory recovery, while consumer demand remained strong.

But Hollenhorst believes there won’t be a soft landing, and said financial markets are beginning to drift away from that belief.

„The reason I think the Fed is going to look at tapering is because we’re more toward the hard landing end of the spectrum,” he said. Bloomberg TV.

Meanwhile, he noted that the central bank will not wait for inflation and the labor market to weaken before cutting rates. It has to look at one or the other.

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Asked if that meant his view of four rate cuts this year would not provide enough economic stimulus to stave off a hard landing, Hollenhorst said nearly every monetary policy cycle has played out that way.

„We are in the long-term phase of the policy cycle,” he explained, noting that stubborn inflation has prevented rates from falling. „The next phase of the policy cycle is to weaken the labor market. Once it starts weakening gradually, it weakens very sharply. I think that’s what’s playing out now.

In February, even amid reports of blowout jobs, Hollenhorst warned of a hard landing and said CNBC He expected a recession By the middle of this year.

While the upbeat headline looks past the jobs numbers, he said there are signs of softness in the number of working hours and a decline in the number of full-time jobs.

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