Apollo Administration Chief Economist Torsten Slok mentioned {that a} re-accelerating US economic system, coupled with an increase in underlying inflation, will forestall the Federal Reserve from chopping rates of interest in 2024.
“The bottom line is that the Fed will spend most of 2024 fighting inflation,” Slok wrote in a Friday observe to purchasers. “As a result, yield levels in fixed income will stay high.”
The Apollo chief economist pointed to a “big jump” in US progress expectations and an easing in monetary situations following the Fed’s December pivot in direction of simpler financial coverage that he mentioned will preserve the central financial institution on maintain this 12 months. Slok additionally flagged a good labor market and sticky wage inflation, alongside manufacturing, providers, and rental knowledge trending larger.
“The market now has to realize that the data is just not slowing down, and the Fed pivot has given an additional tailwind to the economy and to financial markets and financial conditions and to capital markets,” Slok mentioned throughout a subsequent interview with Bloomberg Surveillance Radio on Friday. “All that is likely to continue to be supporting growth in consumer spending, in capex spending, in hiring for most likely the better part of this year.”
Slok’s feedback come after the Thursday launch of the Fed’s most well-liked inflation metric, the core private consumption expenditures worth index, confirmed a rise of 0.4% in January, the quickest tempo in practically a 12 months.
In a Friday observe to purchasers, charges strategists at Financial institution of America mentioned it’s fairly seemingly the Fed will shift this month their 2024 outlooks for GDP and inflation larger. “This macro projection shift naturally raises the risk of the Fed signaling fewer cuts in ‘24 at the March FOMC,” they wrote.
Present pricing for swap contracts estimating the end result of future Fed price selections now anticipates barely greater than three quarter-point price cuts this 12 months, roughly consistent with the central financial institution’s personal median expectations. Treasuries gained Friday after a studying of US shopper sentiment fell in February for the primary time in three months.
Slok joins a rising refrain of Fed watchers — from former Treasury Secretary Lawrence Summers to Wall Avenue strategists at Citigroup — that more and more see the central financial institution holding borrowing prices larger for longer and even shifting to hike rates of interest this 12 months. In mid-February, Summers instructed Bloomberg Tv he sees a “meaningful chance” that the subsequent transfer from the Fed can be a price improve, not a minimize.
The Fed will likely be “very reluctant” to hike charges this 12 months, Slok instructed Bloomberg Surveillance Radio. “But I do think at the same time it’s clear that the market has, on the back of the Fed pivot, declared victory and said inflation is no longer a problem. The problem is that inflation is indeed looking like it’s becoming a problem again,” he mentioned.
