Torsten Sløk, chief economist at Apollo Management, has recently shifted his stance on the likelihood of a soft landing for the US economy. Previously, he had been a proponent of this outcome, but new economic data has led him to believe that it is now unlikely. According to Sløk, the precarious balance between easing financial conditions and the lingering effects of the Fed’s interest rate hikes makes a soft landing seem unattainable.
One factor behind this change in opinion is the improved financial conditions in the economy. Companies are issuing more high-yield and investment-grade bonds, and the IPO market is reviving. Additionally, mergers and acquisitions are increasing. These improvements have also contributed to a stronger job market, with January’s jobs report adding 353,000 jobs to the economy. However, despite these positive signs, the lagged effects of the Fed’s rate hikes are still slowing down consumers, firms, and bank lending. As a result, high interest rates are making borrowing money more expensive for individuals and businesses alike.
With these opposing forces at play in the economy, Sløk believes that a soft landing is no longer likely. He states that this outcome has less than a 50% chance of occurring due to these challenges.