Apollo's Kleinman: Wage, Housing Inflation to Limit Fed Cuts

Fed's Kleinman: Inflation in wages and housing will limit how deep they can cut rates

Apollo's Kleinman warns that wage and housing inflation will limit how far the Federal Reserve can cut interest rates to fight slowing growth

According to Torsten Slok, chief international economist at Apollo Global Management, the Federal Reserve will be limited in how far it can cut rates to combat slowing economic growth due to persistent inflation in wages and housing. Slok also stated that "the Fed is going to have to be very careful not to overdo it" and risk reigniting inflation, which could result in a "much more painful adjustment down the road."

The Federal Reserve has already reduced interest rates twice this year and has signaled that it is prepared to cut rates further. The central bank's policy rate is now in a range of 1.75% to 2%. However, Slok believes that the Fed will need to be cautious about cutting rates too aggressively, as this could lead to a resurgence of inflation.

Slok's comments come as the Federal Reserve is facing increasing pressure to cut rates to support the economy. The U.S.-China trade war has weighed on business investment and manufacturing, and there are concerns that the global economy is slowing. However, the Fed is also mindful of the fact that inflation remains above its 2% target. In August, the core personal consumption expenditures (PCE) price index, which excludes food and energy, rose 1.8% year-over-year, slightly above the Fed's target.

The Fed is caught in a difficult position. It needs to support the economy without reigniting inflation. Slok's comments suggest that the Fed will need to take a cautious approach to cutting rates in the coming months.