The American economy is not as strong as we all thought. Growth has slowed to stall speed over the last four months. It looks like a hardish landing after all.

Citigroup has become the first big American bank to warn that the US has already tipped into a recession. Once this process begins, it can snowball very fast into mass business layoffs unless the Federal Reserve moves fast.

There is no sign of that. Some Fed officials are still breathing fire about inflation, judging that their survival as an independent institution depends on out-Volckering even the great inflation-slayer Paul Volcker.

Citigroup has become the first big American bank to warn that the US has already tipped into a recession.Credit: AP

“The US economy is clearly slowing down, and in our base case it is headed for an outright contraction,” said Andrew Hollenhorst, Citigroup’s US chief economist.

If so, US Treasuries, German Bunds, and UK Gilts are massively mispriced. So are BBB junk bonds trading at an average wafer-thin spread of 1.09 per cent, matching the extreme complacency seen before the global financial crisis.

Hollenhorst has pencilled in a contraction of 0.3 per cent and 2.1per cent (annualised) over this quarter and next, with double-digit falls in business equipment investment. That in turn will push unemployment to 5.5 per cent by the end of the year in a classic recessionary dynamic.

Citigroup says the Fed will be forced to cut interest rates in July and then at every meeting until mid-2025.

‘The US economy is clearly slowing down, and in our base case it is headed for an outright contraction.’

An outcome of this severity would spread almost instantly through the world’s dollarised credit system and via contagion effects, and it would........

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