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Fed rate hikes have impacted the interest rate sensitive components of GDP (housing, autos, capex), but the service sector is 80% of GDP and services continues to be strong. For example, the weekly data for the number of people going to Broadway shows and movie theatres is well above 2022 levels and not too far from the levels seen in 2019, see charts below. Our daily and weekly indicators for the US economy are available here
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Source: Internet Broadway Database, Apollo Chief Economist 
Source: Boxofficemojo.com, Apollo Chief Economist See important disclaimers at the bottom of the page.
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With very strong job growth, a higher labor force participation rate, and a decline in the unemployment rate to the lowest level since 1969, it is beginning to look more like a “no landing” scenario.
Under the no landing scenario the economy does not slow down, and upside risks to inflation are coming back after the initial decline in inflation driven by supply chain improvements. And under the no landing scenario the Fed will need to raise rates more and keep rates higher for longer to get inflation all the way back to the Fed’s 2% target.
The no landing scenario is negative for markets because higher rates for longer increases the downside risks for equities and credit, particularly for tech and highly levered companies that will see higher interest payments for longer. In short, the no landing scenario brings back the volatile market action we saw in 2022 because it reintroduces uncertainty about inflation and about the Fed.
Our employment outlook presentation is available here.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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About 2/3 of US workers work from home at least one day a week, see chart below.
For more, see Stanford Professor Nick Bloom’s WFH homepage and research library here.
Source: Nick Bloom, Stanford, WFH Research, Apollo Chief Economist. Figures may not sum to 100% due to rounding. See important disclaimers at the bottom of the page.
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With Fed hikes coming to an end and more clarity about what the Fed will do, we should continue to expect lower implied vol in rates.
And lower rates vol and more macro certainty is good news for credit, and it should continue to narrow IG credit spreads, see chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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ECI wage inflation is coming down, and the consensus is expecting nonfarm payrolls on Friday to come in at 190K, and none of the indicators the NBER recession committee normally looks at suggest that we are in a recession at the moment, see chart below and here. It continues to look like a soft landing.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Financial conditions have eased to levels seen before the Fed started raising rates, but the Fed is not going to worry much about the ongoing rise in the S&P500 and tightening of credit spreads because what matters for the inflation outlook is the mortgage rate, which continues to put downward pressure on housing inflation, see charts below.
Bloomberg, Apollo Chief Economist 
Zillow, BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Running the Fed minutes through a natural language processing model shows that Fed sentiment is currently at peak hawkish at levels last seen in 2019, 2006, and 2000, see the first chart below. With inflation trending lower and growth slowing, we should expect the Fed to turn more dovish after their meeting on Wednesday. And a Fed pause is good for credit and equities because then markets know that we are at the end of the rate hiking cycle, see the second chart.
Source: Bloomberg (ticker BIFIFEDM), Apollo Chief Economist. Note: Methodology: Bloomberg’s Federal Reserve natural language processing model calculates a score for the opening statement of the FOMC meeting starting in April 2011. The model uses a neural network to predict the dovishness vs. hawkishness of a sentence. Weights are applied for more or less participant consensus (e.g. “some participants” vs “all participants”). The final score is a weighted ratio of dovish vs. hawkish sentences. Positive scores are hawkish and negative scores are dovish. 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Since the financial crisis in 2008, the fertility rate has declined more in the US than in other countries, see chart below and here. Lower population growth leads to secular stagnation, and it has significant consequences for the level of interest rates, Fed behavior, and expected returns for investors, see also here and here.
Source: World Bank, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The chart below shows the price of staying at a hotel in Manhattan, Midtown, and Times Square, and the average daily rate is now above its pre-pandemic level. Looking across a broad range of daily and weekly indictors the consumer is still doing fine. The interest rate-sensitive components of GDP are softer, but the overall picture continues to look like a soft landing, see also our chart book here.
Source: Timessquarenyc.org, Apollo Chief Economist See important disclaimers at the bottom of the page.
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I will be on CNBC today at 1pm with Kelly Evans to discuss the outlook for the Fed and markets, and one key issue is the overheated labor market and the outlook for wage inflation.
Immigration declined during Covid, contributing to significant labor shortages and high wage inflation across many industries.
But over the past 12 months, immigration has increased significantly, and the working age immigrant population is returning to its pre-pandemic trend, see chart below.
This ongoing increase in immigration is the reason why wage inflation continues to come down from the significantly elevated levels we saw during the pandemic.
This is good news for the Fed and markets because a less overheated labor market will accelerate inflation’s return to the Fed’s 2% target.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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