Apollo Administration Chief Economist Torsten Slok stated {that a} re-accelerating US financial system, coupled with an increase in underlying inflation, will forestall the Federal Reserve from reducing rates of interest in 2024.

“The underside line is that the Fed will spend most of 2024 combating inflation,” Slok wrote in a Friday notice to purchasers. “Consequently, yield ranges in fastened revenue will keep excessive.”

The Apollo chief economist pointed to a “massive bounce” in US development expectations and an easing in monetary circumstances following the Fed’s December pivot in the direction of simpler financial coverage that he stated will hold the central financial institution on maintain this yr. Slok additionally flagged a good labor market and sticky wage inflation, alongside manufacturing, providers, and rental information trending greater.

“The market now has to appreciate that the info is simply not slowing down, and the Fed pivot has given an extra tailwind to the financial system and to monetary markets and monetary circumstances and to capital markets,” Slok stated throughout a subsequent interview with Bloomberg Surveillance Radio on Friday. “All that’s prone to proceed to be supporting development in shopper spending, in capex spending, in hiring for almost definitely the higher a part of this yr.”

Slok’s feedback come after the Thursday launch of the Fed’s most popular inflation metric, the core private consumption expenditures value index, confirmed a rise of 0.4% in January, the quickest tempo in almost a yr.

In a Friday notice to purchasers, charges strategists at Financial institution of America stated it’s fairly possible the Fed will shift this month their 2024 outlooks for GDP and inflation greater. “This macro projection shift naturally raises the chance of the Fed signaling fewer cuts in ‘24 on the March FOMC,” they wrote. 

Present pricing for swap contracts estimating the result of future Fed price choices now anticipates barely greater than three quarter-point price cuts this yr, 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 maintaining borrowing prices greater for longer and even transferring to hike rates of interest this yr. In mid-February, Summers advised Bloomberg Tv he sees a “significant probability” that the following transfer from the Fed could be a price enhance, not a lower.

The Fed will likely be “very reluctant” to hike charges this yr, Slok advised Bloomberg Surveillance Radio. “However I do assume on the similar time it’s clear that the market has, on the again of the Fed pivot, declared victory and stated inflation is now not an issue. The issue is that inflation is certainly trying prefer it’s changing into an issue once more,” he stated. 

This text was supplied by Bloomberg Information.