Apollo’s CEO Says It’s ‘Not Clear’ More Rate Cuts Are Needed

Markets are forecasting a 45% probability that by the end of January 2025, the federal funds rate will be in the 3.75% to 4.00% range as of October 3, 2024. Currently, it’s at 4.75% to 5.00%. Market-based forecasts are sometimes accurate, often not, and typically volatile. But are the expectations and desires of markets realistic/?

Apollo Global Management chief executive officer Marc Rowan thinks the forecast is ill-advised and hopes the Federal Reserve doesn’t keep cutting rates, as he told Bloomberg TV on Wednesday.

“Financing is available,” said Rowan. “Real estate prices are going up. It is not clear we need more rate cuts.”

The reduction of rates is typically seen in monetary strategy as a way to stimulate the economy. The lower the rates, the more individuals and businesses can borrow to make purchases and investments.

This mechanism doesn’t always work. After the Global Financial Crisis, the Fed cut rates to near zero to stimulate the economy. It largely didn’t work. Sometimes putting more money in the hands of the public and investors means they save or pay down debt. Starting at the end of 2015 and early in 2016, the central bank began raising the benchmark federal funds rate to hit about 2.4%.

Then they started cutting it in late 2019 and into 2020 when the Covid-19 pandemic tanked the global supply chain. It fell to near zero again. This ultimately led to an explosion in commercial real estate investors who couldn’t get a decent return in fixed-income investments.

But then inflation returned, and the Fed swiftly raised the federal funds rate to counter the process. It’s actually unclear whether this was the mechanism that adjusted inflation or if the improvement of supply chains and the return of normal flow of goods helped inflation drop.

In any case, inflation is headed toward the Fed’s target 2% range and the employment market has moderated. However, many people became accustomed to ultra-low rates and high borrowing leverage. Those in CRE who could point to a 15-year career have likely only experienced those conditions and they consider it normal, which has become public pressure for the good old days.

Furthermore, the Fed has the dual mandate of maintaining price stability and full employment. Loosen the reins too much and inflation increases. Keep them overly tight for too long and the economy could stall or fall, creating more unemployment.

This puts the Fed in a difficult position, which Rowan highlighted. Cutting too fast could overstimulate the economy and drive up inflation, upending the greater economic stability that has come into place.

“This is not a committee that feels like it’s in a hurry to cut rates quickly,” Fed Chair Jerome Powell recently said. “Ultimately, we will be guided by the incoming data. And if the economy slows more than we expect, then we can cut faster. If it slows less than we expect, we can cut slower.”

That sounds sympathetic to Rowan’s view, but the Fed isn’t a single person directing policy. Several central bank officials have publicly hinted at a need for more aggressive rate cuts in the coming months. What will happen in the near future is unclear. There are geopolitical tensions that could affect supply chains again. The Wall Street Journal reported that oil prices that had been largely calm in 2024 just jumped after concern over fighting between Iran and Israel. Energy price increases were one of the major drivers of inflation. Concerns about geopolitical events are what kept JPMorgan Chase CEO Jamie Dimon skeptical about the economy.

That is an example of why Rowan and others are concerned about the Fed’s near-term plans. No one can control all the factors that could affect the economy and how the Federal Reserve should react.