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

[00:00:00]Meanwhile, joining us to talk more about this market rally at least this morning at Post 9 is Torston Slock, chief economist at Apollo joins us here T.

[00:00:07]It's great to see you again. Welcome.

[00:00:08]What's your thought about this memorandum and what it means?

[00:00:11]>> Well, obviously oil prices have come down. But what's also interesting is that front-end rates have come down.

[00:00:16]That means of course that people are beginning to price in that the Fed could potentially not hike rates and maybe we do have some door open here to beginning to cut rates, but long rates haven't really moved down that much. So clearly to Senator's point, yes, this is absolutely good news. Uh but the market is still clearly asking questions about okay, now we need to get down the road and see exactly what the implications are for the economy because the economy continues to do really well as you just highlighted, especially on air travel, but also on hotels, broadly speaking, the consumer, that's just really, really strong growth across the board.

[00:00:46]>> Yeah. And you've been tracking all kinds of micro indicators on demand, whether that's Broadway or you name it, you you're you're good at that. And you haven't seen any degradation or demand destruction, have you?

[00:00:55]>> Absolutely. Even visits to the Statue of Liberty continues to do really well. So you're right. Also, when it comes to hotel demand, the weekly data is strong.

[00:01:02]The daily data for airline travel is still very strong. The daily data for how many people go to restaurants is also very strong. So it's just very difficult to see any slowdown in the economy despite energy prices having gone up and now energy prices are coming down. That's of course just saying that we'll probably have more tailwinds to growth coming from the AI spending boom.

[00:01:18]And let's not forget also we have the one beautiful bill. The one big beautiful bill is also very helpful for growth at this moment. Even even still those those effects are not lapping >> because this was tax cuts that were given to households and yes people who filed taxes on April the 15th certainly have seen improvements in the tax refunds but anyone who has an extension should also continue to see even bigger tax refunds. So yes we have tailwinds not only from the AI spending boom also from the one bill for bill and now also from the welcome development that energy prices have been going down.

[00:01:45]>> Which came out ahead the refund story or the gas price story? Do they offset each other? Well, at this point, of course, now the gas prices are going down.

[00:01:52]That's of course now a tailwind after having been four bucks. We're still 30 30% off the lows.

[00:01:58]>> True. So, but in that sense, we have a tailwind coming from energy prices lower. We also have a very strong tailwind coming from the AI spending boom being broadening out in broadly speaking, not only of course into the sectors that are benefiting from the AI boom, but also more broadly, we're seeing of course also still very strong employment and strong labor market. So economy is doing okay even with higher higher inflation prices basically across you know certain parts of the economy.

[00:02:23]So what do you expect from Worsh? Do you think that is there any reason for him to be hawkish with oil prices heading south?

[00:02:29]>> Well I think this will really be his of course first experience where he has to really signal is he going to more cautious which is will be a cautious approach of saying let's just wait and see. We don't know. We don't want to give forward guidance. But there is also a chance that he may begin to come up with some more strong statements about what is going to change. He has had some strong views. He has some strong opinions about how the institution needs to change. And if the institution needs to change towards less communication, less forward guidance. This is a good first opportunity to step up and say there's a lot of uncertainty including with the Iran deal. So let's now take one step at a time and the incoming data and that will be our guidepost. So there is a good chance that he could basically bring that to the table. Here's the president stepping off Air Force One.

[00:03:09]He's landed in Geneva and route to the G7 meeting. Took off at 3:00 in the morning after the UFC fight at the White House ended just a little after 1:20 in the morning. So hopefully got the president got some rest as he prepares to meet with European leaders with a deal with Iran in hand and a signing ceremony scheduled for Friday on that front. We'll see what the what the leaders ultimately say. I guess torsion the question is how lasting is the inflationary impact right if we are seeing prices come down off the worst levels and that's going to help the consumer is it also going to bring the inflation prices down overall >> absolutely and I think this is of course we have to be very careful but this is indeed something that's beginning to look more temporary or transitory we will have that the inflationary impulse coming from oil prices it looks like this was indeed a temporary impact the other challenge now is that when oil prices come down people drive more in their cars of course people fly now more on airplanes. So that means that demand and the broader economy which is already strong will now also of course get some tailwinds to inflation and combining that with also some tailwindings to inflation coming from tariffs. That means that we are still not out of the woods. I mean core PCE and core CPI is still around 3%. You sound I mean usually you are a little more perturbed about inflation and today you sound like you're a little calmer about the >> well at least today's development on oil prices is certainly absolutely a >> you're walking it back a little actually >> at least when it comes to the energy component but we still have a very strong economy and we still have a Fed that has a really hard time cutting rates. Remember Fed fund futures as we speak are still pricing that we'll get a Fed hike in January. So from that perspective, the market is clearly saying that inflation is still not out of the woods.