The Federal Reserve's policy rate will peak at 5% this year and stay near a 2.5% 'equilibrium rate' for some time, according to Apollo's Torsten Slok.
The Federal Reserve’s vow to bring inflation down to its target 2% annual rate means investors should brace for the central bank’s policy rate to peak around 5% in June, but to stay near a 2.5% “equilibrium rate” for some time, according to Torsten Slok, chief economist at Apollo Global Management.The Federal Reserve’s vow to bring inflation down to its target 2% annual rate means investors should brace for the central bank’s policy rate to peak around 5% in June, but to stay near a 2.
He said a 2.5% equilibrium interest rate, “which keeps the economy at full employment and inflation at 2%” has implications for investors as it resets higher, including “a wide range of consequences for corporate America and financial markets,” in a Friday client note. Higher borrowing costs can cut into corporate profits and impact credit spreads, or the level of compensation bond investors demand above a risk-free benchmark to act as creditors to counties, municipalities, businesses and even the U.S. mortgage market.
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