Apollo warns: slowing growth coexists with stubborn inflation, the Fed is concerned about stagflation risk in 2026

Apollo Asset Management's Chief Economist, Torsten Slok, stated that Federal Reserve officials are increasingly concerned about the risk of stagflation when looking ahead to 2026. This risk manifests as a situation where economic growth slows down while prices continue to rise. Slok's views reflect the way policymakers described economic risks in the forecast reports prepared before the Federal Open Market Committee (FOMC) meeting. As part of this process, FOMC participants are asked to assess whether the risks of inflation and unemployment relative to their baseline outlook are leaning towards an increase or decrease. The recent forecasts have shown a significant shift: officials generally believe that there is greater upside risk to both inflation and the unemployment rate, which is an unusual and concerning combination. Slok pointed out that these assessments indicate that the Fed is worried about a period where even if the labor market weakens, price pressures would still not cool down. Such a scenario would make monetary policy more complicated, limiting the Fed's ability to stimulate growth without worsening inflation. While the Fed's baseline forecasts do not assume stagflation as the most likely outcome, the balance of risks suggests that policymakers are preparing for this possibility. For investors, this information seems to underscore the challenges that may lie ahead in the economic path of 2026, with uncertainty surrounding growth, employment, and inflation.