Torsten Slok: “U.S. economy remains resilient, making inflation hard to tame… won likely to stay weak for now”

Hearing from Wall Street

(4) Torsten Slok, Chief Economist at Apollo Global

Hawks vs. doves at the Fed over the rate path

Policy could be swayed by political pressure

Key investment risks to watch

Fiscal expansion, inflation, excessive concentration in AI

Korea’s semiconductor outlook positive, but

High AI sensitivity also raises risk concerns

Torsten Slok, chief economist at U.S. asset manager Apollo Global Management (pictured), said the won’s weakness against the dollar (a rise in the won-dollar exchange rate) is likely to persist for the time being. In a recent written interview with The Korea Economic Daily, Slok said the U.S. economy is relatively stronger than Korea’s, underpinning the trend. Slok is a Wall Street economist known for his “Daily Spark” reports.

▷Former President Donald Trump is pressuring the U.S. central bank (Fed).

“While the Fed may take a cautious stance, what matters is how markets interpret the Fed’s reaction function. Inflation is still close to 3%, unemployment remains low, and financial conditions are already significantly eased. The Fed’s room to actually move (the policy rate) is limited.”

▷The Fed raised its U.S. growth forecast for this year and expects inflation to cool.

“It’s possible, but it’s a very narrow path. Roughly two-thirds of current inflation is driven not by supply but by demand-side factors. The fiscal impulse is still running, and investment in artificial intelligence (AI) is accelerating. It’s not easy to envision inflation falling quickly to 2% (the Fed’s target) without a slowdown in growth.”

▷Differences within the Fed have widened.

“That matters as a sign that uncertainty inside the Fed is increasing. As divisions widen, the effectiveness of forward guidance (Chair Jerome Powell’s efforts to steady markets through communication) weakens, and markets price in greater volatility around each Fed meeting.”

▷So volatility stemming from those differences is the risk.

“The real risk is not the disagreement itself, but policy (swayed by political pressure and the like) drifting away from the underlying fundamentals of inflation.”

▷How serious is the cooling in the U.S. labor market.

“The labor market is cooling, but it is not in recession territory. Initial jobless claims remain historically low, and while the unemployment rate has edged up, by historical standards it is still consistent with full employment. The key question is how quickly AI adoption translates into productivity gains or labor displacement, and that has not yet been clearly reflected in macro indicators.”

▷The gap between long- and short-term U.S. Treasury yields is widening.

“Short-term yields (2-year) are falling while long-term yields (10-year) remain elevated, reflecting fiscal expansion, the term premium (higher yields for longer maturities), and inflation uncertainty. The current steepening looks less like a signal of growth collapse and more like a signal that confidence in (U.S.) policy is being put to the test.”

▷What do you make of talk of an AI bubble.

“AI investment has now become a core engine of the macroeconomy, and hyperscalers’ capex is historically very high relative to cash flow. Because much of the investment is funded with cash, near-term risks to financial stability have diminished. But if (investors’) expectations exceed the scale of actual profit generation, the risk does not disappear. The broader economy is more exposed to AI, which raises the cost of being wrong.”

▷What risks should investors watch this year.

“The key is the interaction among (these factors). Fiscal policy remains expansionary, inflation is sticky around 3% (not coming down easily), and rates are likely to stay higher for longer. At the same time, markets are overly concentrated on an AI-driven growth story. If that narrative shifts, it could trigger outsized shocks across equities, credit markets, and capital flows.”

▷Is the won’s weakness a temporary move.

“It largely reflects global differentials. The U.S. economy has been relatively stronger, inflation is higher than in Europe, and rates are likely to remain elevated for longer. These factors support the dollar. If global growth converges and rate differentials narrow, FX pressures could ease, but in the near term the macro backdrop still favors dollar strength versus the won.”

▷AI is viewed as a tailwind for Korea’s semiconductor sector.

“It appears we are moving away from a slowdown driven by trade wars and toward a more favorable environment where fiscal stimulus and AI investment are ramping up in earnest. AI is reshaping the manufacturing cycle. It’s not a broad-based industrial recovery; rather, capital spending is concentrated in compute capacity, data centers, and power infrastructure. That is positive for Korea’s semiconductor industry over the long term, but it also means sensitivity to the pace and durability of AI adoption has risen accordingly.”

New York = Park Shin-young, correspondent nyusos@hankyung.com