The U.S. economy is headed for a deep recession this year, and deep rate cuts are the only solution, says Citi’s chief economist.

• Citigroup’s chief U.S. economist told CNBC that the deteriorating labor market is making for a hard landing.

• Andrew Hollenhorst said the job market is gradually softening and „tending to snowball”.

• He has called for four interest rate cuts this year; Other forecasters are more conservative.

According to Andrew Hollenhorst, Citigroup’s chief U.S. economist, a poor labor market is the reason the U.S. economy will soon turn sour. In fact, he sees a sudden economic upturn later this year.

„Companies are hiring at a lower rate. Companies are working fewer hours,” he said told CNBC On Tuesday. „So this gradual softening has already started. It ends up looking like a snowball and a hard landing.”

when Latest labor market data Not necessarily pointing to such a dire situation, Hallenhorst argued that some reports revealed a more pessimistic environment than many might realize. A hard landing is a troubling prospect, as an outright recession could follow.

„Small businesses are telling us that their hiring intentions are at a much lower level than we’ve seen since 2016,” he said, citing survey data from the National Federation of Independent Business. „If I look at the economy as a whole, the hiring rate right now is at the lowest rate since 2014. So we’re at the lowest hiring rate in a decade.”

While the NFIB data has fueled bearish sentiment for a while, Hollenhorst said the recent sharp decline from previous months is worth paying attention to.

Even taking a holistic view, there are reasons for concern. For example, Hollenhorst argues, the national unemployment rate is around 3.9%, a big change from the previous low of 3.5%.

Hollenhorst predicts that a rise in unemployment above 4% could prompt the Federal Reserve to cut interest rates in July. Overall, he thinks there will be four cuts by the end of 2024.

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Other analysts have also voiced calls for a hard landing attributed to labor-market deterioration. Senior forecaster Daniel DiMartino Booth said the unemployment indicator is telling A recession has already arrived.

Meanwhile, Hollenhorst said the likelihood of a July cut was bolstered by the prospect of a hard landing and weaker economic activity — specifically, he argued that the central bank’s long-term interest-rate policy is dampening corporate earnings. Driven by consumer savings.

Read the original article Business Insider