Apollo Chief Economist on Tariffs, Inflation, and Recession Risks

Economic Outlook and Fed's Position

• 💡 The latest economic data, with a slight decrease in inflation and a strong labor market, is good news for the Fed's dual mandate.
• ⚠️ However, tariffs in the pipeline could still add up to 1 percentage point to inflation over the next 12 months, making current data backward-looking.

Impact of Tariffs on Prices and Companies

• 📈 Tariffs on goods imported from China are expected to lead to visible price increases for consumers.
• 🧩 Companies will individually decide how to respond, whether by selling existing inventory at old prices or raising prices immediately, influenced by their competitive situation and sector.
• 💰 Even if companies absorb some costs, there will be upward pressure on goods inflation over time.

Broader Economic Headwinds

• 📉 A combination of weak consumer and corporate sentiment, declining capex planning, and a significant negative wealth effect from the stock market downturn poses downside risks.
• 🗣️ The overall sentiment has shifted from "nuclear winter" to concerns about stagflation, characterized by weak sentiment and economic headwinds.

Recession Probability and Demand Concerns

• ⚖️ The probability of a recession this year has shifted from near 100% to approximately 50/50 following recent market shifts.
• ❓ A key question is who will absorb the increased costs from tariffs: consumers through higher prices or companies through reduced margins.
• 📉 The significant $5 trillion wealth effect from the stock market decline is a substantial hit to consumers, impacting the overall outlook.