Apollo Global's Torsten Slok on Fed Chair Kevin Warsh's approach to interest rates

Summary

Torsten Slok notes the economy remains robust with strong consumer demand, a broadening AI spending boom, and tax-cut tailwinds. The recent drop in oil prices provides relief, but core inflation is still around 3%. He expects the new Fed chair to take a cautious, data-dependent approach with possibly less forward guidance.

• Oil prices have come down, giving a tailwind to consumers and easing inflation fears, though the inflation impulse is seen as temporary.
• Front-end interest rates have fallen as markets price in no Fed hike and possible cuts, while long rates remain sticky.
• Consumer demand indicators (air travel, hotels, restaurants) show no slowdown, with the economy performing well.
• The AI spending boom is broadening and acting as a major growth tailwind, supporting employment and the labor market.
• Tax refunds from the 'big beautiful bill' are providing additional fiscal stimulus to households.
• Torsten Slok expects new Fed Chair Kevin Warsh to signal a cautious, wait-and-see approach and potentially reduce forward guidance.
• Despite lower energy prices, core PCE and core CPI remain around 3%, leaving inflation risks from tariffs and a strong economy.