Torsten Slok’s Macro Update: Higher for Longer and the Road to 2027

In September 2026, the Federal Reserve raised interest rates, a move that was unusual because it came after a previous cut and because markets and the Fed itself had entered the year expecting multiple cuts. Instead, the market now prices in three more hikes. The reason for this dramatic reversal, according to Apollo chief economist Torsten Sløk, is that the U.S. economy is being propelled by two powerful tailwinds: the AI spending boom and ongoing fiscal expansion. Together, they are adding roughly two percentage points to GDP growth, pushing inflation to a sticky 3.5% rather than the Fed’s 2% target. This sets the stage for a “higher for longer” interest rate environment that has profound implications for investors across asset classes.

The Two Engines Keeping Inflation Sticky

Sløk identifies two main forces driving the economy. First, the AI spending boom is adding about one percentage point to GDP growth. This is not just about data centers and energy; it includes significant corporate and consumer spending on AI tokens and software tools. Second, fiscal expansion from the “one big beautiful bill” adds another percentage point. This combined stimulus keeps the economy running hot.