Torsten Slok, chief economist at Apollo Management, believes that factors such as the further acceleration of the US economy and rising underlying inflation will prevent the Federal Reserve from lowering interest rates in 2024.
“The most important thing is that the Federal Reserve will fight inflation for most of 2024,” Slok wrote in a report to clients on Friday, “so the yield level of fixed income products will remain high.”
The Apollo chief economist pointed out that the growth rate of the US economy is expected to rise sharply, and the financial environment relaxed after the Federal Reserve switched to a more relaxed monetary policy stance in December last year. These factors will keep the central bank on hold this year. Slok also cited, for example, that the labor market is tight and wage inflation is sticky, while manufacturing, services, and leasing data are also on the rise.
Torsten Slok
“Entering 2023, the market was expecting a recession. “But at the beginning of 2024, the market thought the Fed would cut interest rates six times,” Slok said. “The reality is that the US economy has not slowed at all, and the Fed's policy shift since December last year has provided a strong impetus for growth.”
On Thursday before Slok made this prediction, the core personal consumption expenditure price index, the inflation indicator valued by the Federal Reserve, rose 0.4% in January, setting a record high in nearly a year.
Before Slok, more and more observers believed that the Federal Reserve would maintain higher borrowing costs for a longer period of time or even raise interest rates this year, including former Treasury Secretary Lawrence Summers and some Wall Street strategists.