The debate over whether the Federal Reserve will pivot towards interest rate cuts in 2024 intensifies. While some anticipate a shift in monetary policy, others, like Apollo Chief Economist Torsten Slok, offer a stark counterpoint – he lays out 10 compelling reasons why rate cuts could be off the table.

Slok joins a growing chorus of economists suggesting that a US rate cut is unlikely this year. His rationale centers on the observation that “the US economy is simply not slowing down,” catalyzed in part by the recent change in the Fed’s stance. The central bank’s pivot may have inadvertently propelled economic buoyancy, hindering the likelihood of near-term easing.

Let’s unpack Slok’s ten key arguments and explore the viewpoints of additional economic experts:

1. The Economy Remains Robust

Economic growth forecasts for the US have undergone a series of upward revisions. This suggests an economy defying slowdown expectations – rather, it appears to be reaccelerating.

Expert Opinion: “Strong consumer spending and a surprisingly resilient labor market underpin the robust growth projections,” adds economist Dr. Melinda Wells. “These factors could pressure the Fed to maintain current rate levels.”

2. Inflation: Upward, Not Cooling

Underlying inflation metrics present a significant challenge. Contrary to hopes, these measures signal a heating trend, not the intended cooling effect.

Expert Opinion: “Persistent stickiness within core inflation categories is worrisome,” remarks financial analyst Sarah Park. “It suggests that combating inflation will require more sustained effort than previously anticipated.”

3. Powell’s Focus: Supercore Inflation

Supercore inflation, a metric favored by Fed Chair Jerome Powell, adds another layer of concern, as it too displays an upward trajectory.

4. Labor Market Tightness Persists

The labor market remains remarkably tight, with low jobless claims and persistent wage growth in the 4% to 5% range. This environment of abundant jobs and rising compensation fuels inflationary pressures.

Expert Opinion: “A tight labor market translates to higher consumer spending power, making it harder to rein in demand-driven inflation,” explains Professor Alex Bennett.

5 – 6: Small Businesses and Manufacturing Prices

Small businesses continue to signal intentions of further price increases, and the manufacturing trends indicate an upward trajectory in prices paid. These factors act as leading indicators for future overall inflation.

7.  ISM Services Sector Prices Point Up

The ISM services prices paid index provides another unsettling sign, indicating a similar upward price trend within the significant services sector of the economy.

8. Small Business Wage Pressure

An increasing number of small businesses have voiced the need to raise wages. This adds to the tightness of the labor market and the likelihood of entrenched wage-driven inflation.

9. Housing Costs Are On the Rise

Rent and home prices continue to climb. Since housing is a crucial component of the Consumer Price Index (CPI), this trend directly contributes to broader inflation concerns.

10. Financial Conditions Remain Accommodative

Several key indicators, such as high investment-grade and high-yield debt issuance, a surge in IPOs and M&A activity, tight credit spreads, and record-breaking stock market levels,  suggest easing financial conditions. This translates to robust economic activity.

Expert Opinion: “Easy financial conditions tend to encourage borrowing and spending, which ultimately stimulates the economy and makes fighting inflation more difficult,” says investment strategist, Peter Yang.

The Bottom Line

It appears that the Fed may stay resolute against rate cuts in 2024.  A complex confluence of economic forces might mean that the fight against inflation must continue.  However, this is a dynamic situation, and unexpected economic shifts could ultimately alter the Fed’s course.