While Everyone Talks about Interest Rate Cuts, Famous Economist Surprises: "Instead of Interest Rate Cuts, FED in 2025..."

With the completion of a year marked by the historic monetary policy moves of the Fed, discussions have already begun on what could happen in 2025.

Torsten Slok, partner and chief economist at Apollo Global Management, offered a contrarian view on CNBC's The Exchange program: The Fed may not only keep interest rates steady but also have to raise them again next year.

Slok indicates stronger-than-expected economic data as a significant factor that could influence the Fed's decisions. According to the Atlanta Fed, the US GDP grew by 2.8% in the third quarter of 2024 and is expected to reach 3.3% in the fourth quarter. This growth far exceeds the Congressional Budget Office's sustainable growth rate estimate of 2% and demonstrates the resilience of the economy despite previous interest rate hikes.

Inflation data also supports Slok's view. While the Consumer Price Index (CPI) for November stood at 3.3%, other measures such as the Atlanta Fed's core CPI and the Cleveland Fed's median CPI are ranging between 3% and 4%. These levels are well above the Fed's 2% inflation target and underline ongoing inflationary pressures.

Slok said, “Despite the Fed raising interest rates since March 2022, we still see strong economic growth and sticky inflation,” and added, “This suggests that monetary policy may not be as restrictive as some think.”

Slok also pointed out potential policy changes under the Trump administration in 2024, which could contribute to inflationary pressures if re-elected. Proposed measures such as lower corporate taxes for domestic producers, tighter immigration controls, and adjustments to customs duties could provide upward momentum for both inflation and economic growth.

Slok said, "These policies may raise inflation in 2025 and make it even more difficult for the Fed to justify interest rate cuts."

In addition, the discussion also addressed how the financial conditions supported by rising stock and cryptocurrency markets could complicate the Fed's task. Slok attributed some of this optimism to 'election-related enthusiasm,' but warned that loose financial conditions could increase the risk of overheating. Please enter the text to be translated. He added, 'It is difficult to claim that lowering interest rates is the right move when you look at emerging markets, strong growth, and stubborn inflation.'

Slok's appearance challenges the common view that the Fed could cut rates as early as mid-2025. Instead, it highlights the risk of higher interest rates, especially if inflation proves to be more persistent or if policy changes under new management further increase price pressures.

Slok said, “Looking at the data, everything points to the possibility that the Fed may have to raise interest rates again next year,” and added, “Ignoring theoretical models and focusing on real-world dynamics will be very important for policymakers.”