(Bloomberg) — Apollo Management Chief Economist Torsten Slok said that a re-accelerating US economy, coupled with a rise in underlying inflation, will prevent the Federal Reserve from cutting interest rates in 2024.
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“The bottom line is that the Fed will spend most of 2024 fighting inflation,” Slok wrote in a Friday note to clients. “As a result, yield levels in fixed income will stay high.”
The Apollo chief economist pointed to a “big jump” in US growth expectations and an easing in financial conditions following the Fed’s December pivot towards easier monetary policy that he said will keep the central bank on hold this year. Slok also flagged a tight labor market and sticky wage inflation, alongside manufacturing, services, and rental data trending higher.
“The market came into 2023 expecting a recession. The market went into 2024 expecting six Fed cuts,” Slok said. “The reality is that the US economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December.”
Slok’s comments come after the Thursday release of the Fed’s preferred inflation metric, the core personal consumption expenditures price index, showed an increase of 0.4% in January, the fastest pace in nearly a year.
Current pricing for swap contracts estimating the outcome of future Fed rate decisions now anticipates approximately three quarter-point rate cuts this year, roughly in line with the central bank’s own median expectations. Treasuries were little changed Friday after two days of gains.
Slok joins a growing chorus of Fed watchers — from former Treasury Secretary Lawrence Summers to Wall Street strategists at Citigroup — that increasingly see the central bank keeping borrowing costs higher for longer or even moving to hike interest rates this year. In mid-February, Summers told Bloomberg Television he sees a “meaningful chance” that the next move from the Fed would be a rate increase, not a cut.
Read more: The Big Bond Steepener Is Flopping as the Fed Delays Rate Cuts
(Updates to add tout, chart, market details. A previous version of this story was corrected to reference cuts, not hikes, in first paragraph.)
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