It's going to be an uphill battle to convince the fed to cut rates: Apollo Global’s Torsten Slok

David Faber (Anchor) 00:00.310

let's continue the conversation right here with tourists and slack he's chief economist at apollo global management you have a favorite in that fed race by the way

Torsten Slok (Chief Economist) 00:10.030

well so i don't have a personal favorite but i think it's clear that the market is trying to chew hard on which of these candidates will have implications for what's happening especially of course in rates what the conclusion of course here is that it all becomes about can the

Torsten Slok (Chief Economist) 00:24.910

new feature persuade the other FMC members about whatever his view might be in this case if the new fed chair wants to cut interest rates there are twelve voting members the new fed chair needs to come in and convince everyone else why it's a good idea to cut interest rates as

Torsten Slok (Chief Economist) 00:38.630

we know from the silent descent as you know from jeff schmidt from kansas city fed it's going to be quite an uphill battle to convince at least where we stand right now the rest of the FMC to cut rates in the current environment

David Faber (Anchor) 00:48.590

as it would be an uphill battle to convince you to cut rates to source and if you were on that committee why because

Torsten Slok (Chief Economist) 00:53.750

i think that the tailwinds that are building are becoming stronger and stronger here in two thousand twenty six last year was the story of hitwinds to the economy coming from trade wall immigration restrictions and student loan payments restarting this episode we're going into

Torsten Slok (Chief Economist) 01:06.870

two thousand twenty six will have tailwinds from the one big beautiful bill will also have tailwinds from the oil prices will also have tailwinds from the dollar having gone down so we're about to see a nike swoosh where growth is going to accelerate this is the contentious

Torsten Slok (Chief Economist) 01:18.950

expectation that the feds expectation that's our expectation so the growth will get bigger and bigger as we go through this year and as a result when inflation is still already close to three percent the risk to inflation still continue to be quite meaningful so the bottom line

Torsten Slok (Chief Economist) 01:31.710

is i would be very reluctant with cutting interest rates in an environment where we have an economy that's beginning to accelerate in particular because of the tailwind coming from the one what

David Faber (Anchor) 01:40.750

about the risk sorry carl of of of of employment i mean we've been seeing numbers we have not seen in quite some time i think we're at four year highs at least isn't that a concern to you and we haven't even started to talk about the impact of AI that may really come to the fore

David Faber (Anchor) 01:55.310

in two thousand twenty six well

Torsten Slok (Chief Economist) 01:56.350

one very important reason why job growth has slowed in the last six months is because immigration has slowed the last several years net immigration into the US was around three million every year the cbo is not forecasting that there will be around five hundred thousand in the

Torsten Slok (Chief Economist) 02:10.350

next two years so in other words we're seeing a fairly sharp slowdown and as a result the dallas fed has calculated that the new equilibrium rate for non fund payrolls which used to be two hundred thousand jobs created every month is now down to thirty thousand jobs every month

Torsten Slok (Chief Economist) 02:23.350

so a very important reason why job growth has slowed is indeed because immigration has slowed so much you

David Faber (Anchor) 02:30.350

did write this week that the feds biggest risk for next year is stagflation

Torsten Slok (Chief Economist) 02:35.350

i still think that stagflation is the risk because there's still some headwinds coming especially if AI does not deliver there's a lot of things riding on AI continuing in two thousand twenty six the data center build out of course has added a lot to GDP growth and we have also

Torsten Slok (Chief Economist) 02:48.150

seen when stock prices go up that consumer spending especially for the upper end of the cave in the K shaped outlook continues to still be very strong but if AI does not deliver on earnings especially also begin to see a slowdown in capex spending on the data center front going

Torsten Slok (Chief Economist) 03:02.870

forward into the next several years that will indeed begin to raise some risks about downside to growth coming from the number one risk namely a i road

David Faber (Anchor) 03:10.590

but it wouldn't take prices down with it no because

Torsten Slok (Chief Economist) 03:13.070

AI on its own is only about if you think about data center construction is only about four percent of GDP so that's why given sixty percent of GDP as services and we have now had the service extra inflation has been relatively stable yes it's true that rents are pulling lower

Torsten Slok (Chief Economist) 03:27.270

but ISM services prices has really been going up so there's a lot of different forces in inflation and the data here that came out this week was somewhat confusing to be honest but the bottom line is in the next six months and especially if we get to april we'll begin to see

Torsten Slok (Chief Economist) 03:40.150

some fairly meaningful risks that inflation is still going to be elevated and that's exactly why they're from C members are so split on this issue what should we do an environment where yes maybe the labor market is a bit weaker because of labor demand but given inflation is

Torsten Slok (Chief Economist) 03:52.470

still very sticky and now is at risk of going up over the next six months then the key issue for the fomc becomes can we been cutting that environment that's why the only thought of course in the dot plot the only cut we have is one card here of course in two thousand twenty six