A soft landing is now ‘most unlikely scenario’ for the US, Apollo’s chief economist says

Apollo Management’s Torsten Sløk says a soft landing is unlikely.

Screengrab/Bloomberg

A soft landing is now “most unlikely scenario” for the US, with a less than 50% chance of it happening, Apollo’s chief economist says.
That’s because the economy hangs in a precarious balance between easing financial conditions and the lagged effects of the Fed’s rate hikes.
“The bottom line is that what currently looks like a soft landing is a fragile equilibrium.”

Economic downturn? Maybe. A re-accelerating economy? Perhaps.

But a soft landing for the US economy? Probably not.

“The worry is the risks have risen that we will not have a soft landing,” Apollo Management’s chief economist Torsten Sløk said in a Bloomberg interview on Monday. “I think there’s now a higher than 50% chance that we either have a hard landing or no landing. In other words, the fragile soft landing is really now almost the most unlikely scenario.”

It’s worth noting that Sløk was previously a soft-landing champion. But he’s changed his mind as new economic data continues to roll out.

One piece of that recalculation is the easing financial conditions in the economy. Companies have been issuing more high-yield and investment-grade bonds, the IPO market is coming back to life, and mergers and acquisitions are waking up from what was mostly a moribund 2023.

Those changes have also strengthened the job market. January posted a fantastic jobs report, adding 353,000 jobs to the US economy. And other economic data like GDP numbers and consumer spending have also come in hot.

But on the flip side of those easing forces are the lagged effects of the Fed’s rate hikes, which are “slowing down consumers, firms, and bank lending,” Sløk said in a note on Monday. High interest rates have made borrowing money a lot more expensive, which is crippling pockets of the financial system like the commercial real estate market. 

And right now, the economy is nested in a precarious balance between those two forces.

“The bottom line is that what currently looks like a soft landing is a fragile equilibrium,” he wrote.