Apollo's Slok on Housing, US Economic Growth, Fed Policy

High interest rates are inadvertently fueling inflation by stifling housing construction, which reduces supply and drives up rental costs. Torsten Slok, Chief Economist at Apollo, observes that while traditional rate-sensitive sectors like housing and autos are struggling, the broader economy remains resilient due to robust growth in AI, healthcare, and education. The AI boom currently contributes approximately one percentage point to US GDP growth, though a potential slowdown in "token spending" and delayed payoffs from AI investments could impact future valuations. Furthermore, the emergence of agentic AI poses a structural risk to the banking sector by enabling rapid deposit shifts that challenge traditional funding models. These inflationary pressures are compounded by rising energy prices, tariffs, and immigration restrictions, suggesting that the Federal Reserve faces a complex environment where standard monetary policy tools may not restrain the economy as effectively as anticipated.