Understanding Economic Data and Inflation
Today, Andrew Hollenhorst, Citi’s Chief U.S. Economist, appeared on CNBC’s “Squawk on the Street” to analyze the current economic data and its implications like the ‘Goldilocks’ economy, progressing inflation rates, and the timeline for achieving target inflation rates.
Evaluating Economic Data: The ‘Goldilocks’ Scenario
Hollenhorst framed the current economic data as indicating a ‘Goldilocks’ scenario, featuring moderating activity and cooling inflation. But he warned that this could be fleeting. Looking ahead, he anticipates more complex economic activity, with potentially stickier inflation and slower growth.
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The Challenges of Stickier Inflation
The economist noted a significant decrease in goods inflation but warned that services inflation has been somewhat sticky. He fears this might lead to more volatile inflation overall, calling this volatility a concern for the coming year.
Target Inflation by 2025
Hollenhorst expressed that the target inflation rate might be reachable but may require a recession. He emphasized concerns about higher inflation, particularly in the services sector and housing, where prices continue to rise rapidly.
The Future of Federal Reserve Rate Cuts
Hollenhorst believes that the Fed is likely done with rate hikes, but any future rate cuts will depend more on activity data rather than inflation data.
Job Growth and Economic Indicators
Hollenhorst predicts potential negative readings in job growth by the middle of next year. As early signs of slowing, he pointed out rising continuing jobless claims and an increasing unemployment rate. However, he expects a stronger jobs report in the near term before any slowdown occurs around mid-next year.
Corporate Debt, Interest Rates, and Household Mortgages
Interview also covered corporate debt and interest rates, with Hollenhorst mentioning that many treasuries have locked in decent rates, and there’s a divergence between households with fixed-rate mortgages and those who are renting. He highlighted the resilience to higher rates due to people locking in lower rates, both at the individual level through mortgages and corporates through longer-term borrowing.
Hot Take
Hollenhorst’s remarks underscore the challenges ahead for the US economy, especially regarding inflation and job growth. The actions of the Federal Reserve will be crucial in navigating these uncertain waters.
