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.

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  • 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%.

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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.

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

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