Apollo Global’s Chief Economist, Torsten Sløk, has made a bold prediction that there will be no rate cuts in 2024. Sløk believes that rates will remain higher for longer due to a resurgence in growth and inflation pressures. This forecast goes against the expectations of many on Wall Street who still anticipate some room for the Federal Reserve to ease rates off their 23-year highs.
Sløk outlined ten reasons to support his view that the Fed will hold off on rate cuts. These reasons can be categorized into three main areas: inflation, growth, and the stock market. Sløk pointed out that underlying measures of trend inflation are increasing, citing various inflation data such as wages, alternative inflation measures, and manufacturing surveys. The core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, rose 0.4% in January, the highest in a year. Although the annual rise in core PCE fell to a three-year low, the six-month annualized core PCE surged to 2.5%, surpassing the Fed’s 2% target.
Regarding wages, Sløk highlighted that average hourly earnings rose 4.5% in January compared to the previous year. He argued that the labor market remains tight, jobless claims are low, and wage inflation is sticky between 4% and 5%. However, Fed Chair Jerome Powell has suggested that this data does not yet pose a risk to bringing inflation back to 2%. Powell stated that wage increases are not quite where they need to be in the longer run but acknowledged that they are moving in the right direction. The upcoming February jobs report will provide further insight into this matter.
Despite these inflation pressures, growth forecasts on Wall Street have been revised higher. Bank of America economist Michael Gapen raised his growth forecast for 2024 from 1.2% to 2.1%. Sløk noted that growth expectations for the US continue to be revised higher since the Fed’s pivot in December and the subsequent easing in financial conditions. In December, Fed officials projected GDP growth of 1.4% for this year. These forecasts will be updated later this month.
Sløk concluded his note by highlighting that financial conditions continue to ease, which is benefiting M&A markets, credit markets, IPO activity, and equities. The S&P 500 just had its best February since 2015, and the Nasdaq closed at a record high. Sløk’s bottom line is that the Fed will spend most of 2024 combating inflation.
In summary, Apollo Global’s chief economist, Torsten Sløk, has made a contrarian prediction that there will be no rate cuts in 2024. He believes that the Fed will keep rates higher for longer due to a resurgence in growth and inflation pressures. Sløk’s view diverges from the expectations of many on Wall Street, who still anticipate some rate cuts this year. However, Sløk’s analysis of inflation, growth, and financial conditions supports his argument that the Fed will prioritize fighting inflation throughout 2024.
