Apollo’s Torsten Slok Warns Inflation Has Become A ‘Very Serious’ Problem — Says Markets Now Expect Fed Rate Hikes

• Slok stated that the Fed is currently operating from a risk-management perspective in monetary policy amid high energy prices driven by the ongoing war with Iran.
• He said that if the Strait of Hormuz remains closed for the next six months, the risk is that inflation will return to a higher trajectory.
• In a note earlier this week, Slok said inflation fueled by higher energy prices, tariffs, and immigration restrictions has remained stickier than the Fed expected, limiting the room for rate cuts.

Torsten Slok, chief economist at Apollo Global Management, warned on Friday that inflation has become a “very serious” issue as the war in Iran has sent energy prices soaring.

During an interview with CNBC, Slok said the bottom line is that the inflation scenario points to rates not falling as expected.

“It’s so serious that Fed funds futures are expecting that the next move from the Fed is now a hike in January next year, which is not at all what the dot-plot has been pointing to, it is not at all what the Fed has been talking about,” he said.

Slok’s remarks come as Jerome Powell’s term as Federal Reserve chair ends on Friday, with Kevin Warsh securing Senate confirmation on Thursday to succeed him.

Slok Explains Fed’s Risk Management Approach

Slok stated that the Fed is currently operating from a risk-management perspective in monetary policy amid high energy prices driven by the ongoing war in Iran.

“It could be that this goes away quickly, that’s what we all hope. It could also be that this is going to take a lot longer, and if it does take longer, the risk of course is that this might come with a profile where inflation has to be higher for longer and therefore rates have to be higher for longer,” Slok added.

He said that if the Strait of Hormuz remains closed for the next six months, the risk is that inflation will return to a higher trajectory.

Meanwhile, crude oil prices rose on Friday after President Donald Trump said he is losing patience with Iran. U.S. West Texas Intermediate (WTI) futures expiring in June rose more than 4% to hover around $106 a barrel. Brent crude futures expiring in July were up 4%, at $110 a barrel.

The United States Oil Fund ETF (USO) was up about 3% at the time of writing, while the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose nearly 4%.

Inflation Stickier Than Fed Expected, Says Slok

In a note earlier this week, Slok said inflation fueled by higher energy prices, tariffs, and immigration restrictions has remained stickier than the Fed expected, limiting the room for rate cuts.

He added that the U.S. fiscal trajectory remains structurally bearish for bonds, with the Treasury relying heavily on short-term T-bills to fund record deficits while avoiding upward pressure on long-term yields.

According to Slok, any eventual increase in longer-dated debt issuance, especially during a recession-driven deficit surge, could push long-term yields even higher amid uncertain demand for duration.

Annual CPI Highest Since 2023

Data from the Bureau of Labor Statistics (BLS) released last week showed that on a seasonally adjusted basis, the Consumer Price Index (CPI) rose 0.6% in April after rising 0.9% in March.

The increase pushed the annual inflation rate to 3.8% before seasonal adjustments, marking the highest level since May 2023 amid rising energy prices.

Higher energy costs were the primary driver of the jump in headline inflation, with the energy index rising 3.8% in April and accounting for more than 40% of the monthly increase in consumer prices.

Meanwhile, U.S. equities declined in Friday morning’s trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, fell 1.12%; the Invesco QQQ Trust ETF (QQQ) declined 1.39%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 1.07%. Retail sentiment on Stocktwits regarding the S&P 500 ETF was in the ‘bullish’ territory.

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