Top economist Torsten Slok asserts that the Federal Reserve will not be reducing interest rates this year.

Apollo Management Chief Economist Torsten Slok has asserted that the Federal Reserve won't be inclined to reduce interest rates in 2024 due to the re-acceleration of the US economy and a concurrent uptick in underlying inflation. Slok emphasized that the Fed is poised to grapple with inflationary pressures throughout 2024, resulting in sustained higher yield levels in fixed income.

In a note to clients, Slok highlighted the substantial surge in US growth expectations and the improvement in financial conditions post the Fed's shift towards accommodating monetary policy in December. He indicated that these factors, along with a tight labor market, persistent wage inflation, and elevated trends in manufacturing, services, and rental data, will keep the central bank from making interest rate cuts this year.

During an interview with Bloomberg Surveillance Radio, Slok elaborated on the ongoing positive impact of the Fed's policy pivot on the economy, financial markets, and capital markets, foreseeing continued support for consumer spending, capital expenditure, and hiring throughout the year.

Slok's remarks follow the release of the Fed's preferred inflation gauge, the core personal consumption expenditures price index, which showed a 0.4% increase in January, the fastest pace in nearly a year. Rates strategists at Bank of America suggested that the Fed might raise its 2024 GDP and inflation outlooks this month, potentially signaling fewer cuts in 2024 at the March FOMC meeting.

The current expectations for future Fed rate decisions, as estimated by swap contracts, anticipate just over three quarter-point rate cuts this year, aligning closely with the central bank's median projections. Treasuries experienced gains after a decline in US consumer sentiment in February.

Slok's perspective aligns with a growing consensus among Fed watchers, including figures like former Treasury Secretary Lawrence Summers and Citigroup's Wall Street strategists, who foresee the central bank maintaining higher borrowing costs for an extended period or even contemplating interest rate hikes in 2024. Despite Slok's acknowledgment that the Fed is likely to be hesitant about raising rates this year, he emphasized the resurgence of inflation as a looming concern, cautioning against premature declarations that inflation is no longer a threat.