Apollo Forecasts Sticky Inflation May Block Fed Rate Cuts in 2026
New York, Sunday, 21 December 2025.
Apollo’s Torsten Sløk warns 2026 brings stagflation risks if AI underperforms, potentially forcing the Federal Reserve to abandon rate cuts despite slowing economic growth.
Stagflation Risks Challenge 2026 Market Optimism
As the calendar turns toward 2026, Apollo Global Management Chief Economist Torsten Sløk has issued a critical warning that stagflation—a debilitating combination of sluggish economic growth and high inflation—stands as a primary risk for the U.S. economy [1][6]. While the third quarter of 2025 saw the Gross Domestic Product (GDP) expand by an estimated 3.5%, underlying data suggests that price stability remains elusive [1][6]. Specifically, while the November Consumer Price Index (CPI) cooled to 2.7% year-over-year, the services sector continues to run hot, with the ISM Services Prices Index clocking in at 65.4% for the same month [1][6]. This divergence signals that inflation is “very sticky,” complicating the Federal Reserve’s ability to ease monetary policy in the coming year [1].
The AI Capital Expenditure Gamble
A significant component of Apollo’s cautionary outlook revolves around the massive capital deployed into Artificial Intelligence. Sløk highlights that economic headwinds could intensify “especially if AI does not deliver” on expected returns [1]. Currently, the “Magnificent 7” technology giants are allocating approximately 60% of their operating cash flow toward AI infrastructure, creating a market largely dependent on the return on investment (ROI) of these technologies [8]. If adoption rates plateau or companies shift from hype to the difficult reality of integration without immediate profitability, the resulting pullback in spending could drag down the broader economy [8].