Additional Coverage:
- The U.S. economy is headed for a hard landing, and Fed rate cuts won’t be enough to rescue it, Citi says (fortune.com)
In a dramatic shift from last year’s prevailing view that the U.S. economy was on the brink of recession, the current economic discourse now leans towards the possibility of a more gentle economic deceleration, or a “soft landing”. Yet, not everyone is convinced things will pan out smoothly. A leading economist at Citibank is bracing for a bumpier ride ahead, forecasting a “hard landing” scenario where the Federal Reserve will feel compelled to implement four rate reductions to stabilize the economy.
Adding complexity to the economic landscape, a recent report by the Labor Department indicated that the U.S. economy added 175,000 jobs in April, a figure that fell short of economists’ expectations. This underperformance has raised eyebrows, suggesting potential weaknesses in the labor market. Supporting this notion, recent surveys have pointed to various challenges, including increased difficulties in job hunting, a noticeable dip in employers’ enthusiasm to hire, and heightened job insecurity among workers.
Amid these troubling signs, the economic indicators present a mixed bag. On one hand, the employment cost index has seen an uptick, suggesting businesses are spending more on labor, which could imply enduring confidence in consumer demand. On the other hand, GDP growth has shown signs of slowing down, and while consumer demand remains robust, this juxtaposition of data sends mixed signals about the health of the U.S. economy.
With the labor market showing signs of strain, the Federal Reserve might be prompted to cut interest rates sooner than anticipated in an attempt to support economic growth. One economist’s persistent warnings of an impending hard landing, alongside his forecast that the Fed will slash rates in response to the deteriorating labor market conditions, highlights the precariousness of the current economic situation. These cautions come despite previous positive job reports, underscoring the nuanced and often contradictory indicators of economic well-being and the challenges in predicting the economy’s course.