Faced with a likely pickup in inflation, the Federal Reserve will buck the market consensus and keep interest rates where they are this year, according to the chief economist at alternative asset manager Apollo Global Management . Some measures of inflation are trending higher, Apollo’s Torsten Slok said in a note to clients. Wage inflation is stuck at a 4%-5% annual rate, more businesses are still looking to raise prices and a rebound is coming in hosing inflation, partly due to a rise in asking rents, the former Deutsche Bank chief economist wrote. As a result, the central bank may not be able to start lowering the cost of borrowing in 2024, a central tenet of the stock market’s latest bull run. “The reality is that the U.S. economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December,” Slok said. The upshot is, “the Fed will not cut rates this year and rates are going to stay higher for longer.” Slok cited a host of data showing underlying measures of trend inflation moving higher or set to do so, mentioning the Fed-preferred “supercore” basket of goods and services. He also noted evidence of higher prices paid in both manufacturing and the service data as further evidence of storm clouds gathering. In this environment, Slok said the Fed will need most of the year to continue batting down inflation. Fixed income yields will remain high as a result, confounding investors who entered 2024 expecting as many as six interest rate cuts this year, the economist said.
