If the Federal Reserve cuts rates into this red hot US stock market environment, we could see a bubble form to rival the Tech Bubble a quarter century ago
If the Federal Reserve cuts rates into this red hot US stock market environment, we could see a bubble form to rival the Tech Bubble a quarter century ago.
Meanwhile, Citi says the hope for a soft landing is fading; Citi predicts the US economy will enter a recession in mid-2024.
Andrew Hollenhorst, Citi's chief US economist, expressed skepticism about the idea of a soft landing in a CNBC interview, noting that while the economy appears strong on the surface with historically low unemployment, strong consumer spending, and robust GDP growth, there are underlying weaknesses.
One area of concern is the labor market. Despite a strong January jobs report that added 353,000 jobs, Hollenhorst pointed out that the number of hours worked is decreasing, full-time employment has declined, and sectors like the restaurant industry have slowed hiring.
He emphasized the importance of the labor market, stating that if the unemployment rate remains low, people will continue to spend, supporting the economy. However, he warned that an increase in the unemployment rate could signal a more significant decline in the US economy.
Hollenhorst also highlighted high inflation, which was underscored by this week's consumer price index data showing a higher-than-expected increase in monthly inflation.
Credit-card delinquency rates are on the rise, indicating consumer financial stress. David Rosenberg, a top economist, has noted a consumer credit default cycle has begun, with one in every 12 credit-card holders missing payments.
Consumer weakness is evident in retail sales numbers, which showed a significant 0.8% decline in January.
Hollenhorst's outlook is shared by others, including Torsten Sløk of Apollo Management, who also believes a soft landing is now the "least likely" scenario for the economy.