After September’s jobs report came in significantly better than expected, many traders have abandoned the idea of another 50-basis-point interest rate cut at the Federal Reserve’s November meeting. Apollo Global Management chief economist Torsten Sløk believes there’s no need for another rate cut this year, and joins Market Domination to lay out his case. "I think that the economy is actually still doing quite well. The puzzle in financial markets, of course, is that the Federal Reserve started raising interest rates in March of 2022. And we’re still sitting here two and a half years later, and we still have not seen the negative consequences of interest rates moving higher. So that’s why the debate, looking ahead, continues to be about, well, why didn’t Fed hikes have this negative impact on the economy? And why is it that the data continues to still be so strong?" Sløk tells Yahoo Finance. Sløk outlines three reasons why the Fed’s rate hikes haven’t had a negative impact on the economy. He points to strong tailwinds from the energy transition, fiscal policy, and consumers and firms locking in low interest rates during the pandemic. Thus, sensitivity to interest rates has been "relatively weak." He notes that the Fed moved forward with a 50-basis-point cut at its September meeting because inflation had cooled — not because the economy was weak. Now, he argues, the Fed has to walk a delicate balance between easing rates and not reigniting inflation: "If you begin to cut prematurely, it does, of course, raise the risk in particular for reigniting a rally in the housing market. We’re already seeing various indicators on housing beginning to show much more sign of life. And most importantly, the risk, of course, is if home prices begin to go up again. Housing has a weight of 40% in the CPI (Consumer Price Index) basket. We could also begin to see inflation begin to move higher. So that’s why it’s a very delicate balance that they are trying to walk here between. On the one hand, they do want the economic data to be good, but they also don’t want inflation to begin to move higher." With tensions in the Middle East rising, rising oil prices could also drive inflation up, Sløk explains. Note: Apollo Global Management is Yahoo Finance’s parent company.
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