Is soft landing still a possibility?

There’s still a possibility that the central bank will succeed in cooling off the U.S. economy without having to push it into recession, says Citi’s Andrew Hollenhorst.

Hollenhorst’s comments on CNBC’s ‘Power Lunch’

So far, market has swallowed the talk of aggressive rate hikes this year. But the other part of the equation is yet to unleash. On CNBC’s “Power Lunch”, Hollenhorst said:

Soft landing is still possible; it just becomes a lot harder when inflation is running this high. Part of it is what they’ll do with the balance sheet. That’s the other lever they can pull on to raise rates and put some restrain on the economy.

The S&P 500 index has recovered close to 10% in less than a month, even after the U.S. CPI climbed to a fresh forty-year high in February.

Hollenhorst sees four consecutive 50 bps increase

Citi’s chief U.S. economist now forecasts four consecutive rate hikes of 50 basis points each, which he sees as merely necessary and not particularly aggressive. Hollenhorst added:

It’s basic macroeconomics. When you have inflation that’s significantly higher than target, you need to move the nominal policy rate maybe close to the rate of inflation. So, the idea of 50 bps four times is really not that aggressive.

His remarks come shortly after the yield on the U.S. 2-year Treasury surpassed the one on the 10-year. Simply put, the yield curve has inverted.