Top Economist Warns Fed Against Cutting Rates Next Week
The chorus of voices urging the Federal Reserve to start easing monetary policy is growing louder, but one economist argues the narrative is built on misplaced assumptions rather than economic evidence.
Apollo Global Management’s chief economist Torsten Slok believes cutting rates next week would be an error — not because recession fears are exaggerated, but because the foundations of the economy remain much stronger than markets are suggesting.
Key Takeaways
- Torsten Slok says current data doesn’t justify a Fed rate cut.
- He points to strong labor conditions and falling default rates.
- Slok argues inflation stuck around 3% makes easing policy risky.
Speaking on CNBC, Slok challenged the dominant storyline that the United States is sliding into the beginning of a credit crisis. Instead, he pointed to an overlooked reality: several of the warning signals that would typically precede a downturn are moving in the opposite direction. High-yield debt defaults, for example, have been drifting lower for half a year. In past cycles, rising default rates were the bell ringing before tightening financial conditions hit the economy. This time, Slok argues, that alarm isn’t sounding.
A Labor Market That Refuses to Break
Another pillar of Slok’s argument sits in the job market, often viewed as the most reliable indicator of economic momentum. The economist says investors appear fixated on rate-cut scenarios despite labor dynamics that are surprisingly steady. Initial jobless claims remain close to cycle lows, suggesting layoffs have not accelerated. Meanwhile, hiring appetite — measured by online job postings — has begun ticking higher again, according to Indeed’s internal data.
This resilience, Slok stresses, isn’t due to overheating demand but rather to a supply issue. Immigration slowdown has tightened the labor pool, meaning employers are chasing fewer available workers than usual. Weak employment environments usually support rate cuts, but Slok says that isn’t the situation unfolding today.
Sticky Prices Make the Fed’s Job Harder
The puzzle is compounded by price pressures that haven’t retreated to where policymakers want them. Inflation sits near 3 percent — above the Federal Reserve’s 2 percent target — and Slok doesn’t expect meaningful progress over the coming year. “Inflation is not drifting lower; it is settling,” his assessment implies, and easing rates into that backdrop risks fueling demand in a still-firm economy.
Markets are preparing for the Fed to pivot, partly due to fears that a delayed reaction increases the chance of a harder landing. But Slok’s view flips the logic: cutting too soon, he suggests, could add new distortions and undermine efforts to restore price stability.
Why Slok Thinks Waiting Is the Only Logical Move
Take all these ingredients — stable employment, falling corporate default rates, inflation stuck above target — and the conclusion is straightforward for Slok: the data simply doesn’t match the narrative pushing for policy relief.
The Fed meets next week amid divided expectations. Some analysts anticipate a symbolic rate trim to signal easing conditions; others expect the committee to sit tight until inflation convincingly softens. Slok falls into the latter camp, arguing that hope for a cut is rooted more in wishful thinking than in economic reality.
If his interpretation is correct, the central bank’s next move will not be a rescue but continued restraint — even if markets don’t like what that means for pricing in the weeks ahead.
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Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
