Apollo's Torsten Slok: A Fed rate hike is still 'extremely unlikely'

Summary

• Market has rapidly shifted from pricing Fed rate cuts (due to AI hype, rising unemployment) to now pricing a 42% probability of a hike by October, driven by new upward inflation pressures.
• Slok argues a Fed rate hike remains "extremely unlikely" as oil price shocks historically bring demand destruction and a growth slowdown, not sustained inflation requiring hikes.
• The Fed's dual mandate (inflation + employment) provides flexibility; current data shows inflation pressures but employment is holding, with emerging downside growth risks.
• The ECB faces a more acute challenge: its sole mandate is 2% inflation, forcing it to consider hikes even as the European economy slows, creating a policy headache.
• U.S. economic activity remains remarkably strong despite shocks: TSA passenger throughput is at all-time highs, weekly Redbook retail sales are strong, and hotel demand/rates are robust.
• The resilience is attributed to tailwinds from AI spending and fiscal policy (the "one big, beautiful bill").
• The key uncertainty is the duration of the oil price shock; if prolonged, it will likely lead to demand destruction and slow the currently strong consumption metrics.
• The core debate is whether the current shock is transient (leading to market volatility but a stable future) or persistent (altering the growth and policy path).