Corners of the consumer and corporate market are beginning to feel the pain from the Federal Reserve’s ultra-aggressive rate hikes, even though broader macroeconomic indicators are still showing signs of strength, says Apollo’s Torsten Slok.
“A default cycle has started,” the chief economist told Bloomberg TV Thursday, pointing to rising delinquency rates for auto loans and credit cards, and higher default rates within the high-yield and loan market.
Slok says the strong recovery in the labor and housing markets isn’t a sign that the Federal Reserve’s aggressive monetary tightening hasn’t worked its way through the economy. Rather, the effects are being felt in areas that are more inconspicuous.
“It’s very clear that the effects of monetary policy are showing up in the the background and it will eventually begin to slow things down,” he said.
Although markets cheered Wednesday’s softer-than-expected inflation print, Slok said that the core CPI rate at 4.8% is still much too high for the US central bank to soften its policy stance.
“We are nowhere near the 2% target where they want it to be,” Slok said. “With that backdrop, of course they will continue to say, ‘we just have to keep going because we still have way too high inflation.’”
