Jim Dyson | Getty Images News | Getty Images
Stephen Wieting, chief investment strategist and chief economist at Citi Global Wealth, said the global economy does not need to “collapse” to get inflation back on target and return to sustainable growth.
Major economies have proven surprisingly resilient to sharp interest rate hikes by central banks over the past two years. This is particularly true in the United States, where a recession has been avoided so far and the labor market remains strong.
With growth slowing and inflation remaining on a downward trajectory towards the central bank’s target, talk has turned to interest rate cuts.
Wieting said Monday on CNBC’s “Squawk Box Europe” that he is optimistic the global economy does not need an “economic collapse” to curb inflation.
“It took one big shock, the pandemic and the collapse. It didn’t take two recessions to finally solve the inflation problem,” he said.
“The current decline in manufacturing and trade around the world is weighing on some parts of the economy, but it is likely to bottom out before the end of the year.”
U.S. headline inflation in December was 3.4% annualized year over year, still above the Federal Reserve’s 2% target but well below the June 2022 peak of 9.1%.
Investors will be watching Friday’s personal consumption expenditure (PCE) inflation rate, the Fed’s preferred indicator, for further clues about when the central bank will start cutting rates.
Meanwhile, preliminary fourth-quarter GDP figures are scheduled to be announced on Thursday, and the economic growth rate is expected to be 1.7%, the slowest growth rate since the 0.6% decline in the second quarter of 2022.
“Looking particularly beyond next year, we think the period of slower global economic growth and slower U.S. employment growth may be behind us, leading to a period of healthier growth,” Wieting said. is the challenge for investors this year.” .
He stressed that while there is surplus that needs to be removed from the economy, this is not the result of “true overheating” or a prolonged “boom” and is not the result of excessive government fiscal stimulus related to pandemic recovery. . It will be repeated.
“If you look at the money supply in the United States, it has declined by 4% in the past year. Look at the 1970s. It grew at almost 10% for the whole decade, and key prices rose by 14% every year. I did that. … It’s persistent inflation,” Wieting said.
“This story of all the government spending going back and forth, with supply and demand swinging wildly, consumer spending going up and down 30% between goods and services during the pandemic, is no longer the environment we’re in.”