Torsten Slok: US Economy 'Running Pretty Hot' in 2026

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Apollo's chief economist Torsten Slok warns the U.S. has shifted from stagflation risk to an overheating economy, slashing recession odds to 10% as AI, fiscal stimulus, and a weaker dollar accelerate growth.

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What Happened

Speaking to CNBC and in research published through Apollo Academy, Slok stated plainly that the economy is "running pretty hot," a phrase that captures the pivot he has been telegraphing for months. His published research note, titled Stagflation in 2025. Overheating in 2026, lays out 10 distinct tailwinds supporting US economic growth this year, including the artificial intelligence investment boom, an industrial renaissance, a depreciating U.S. dollar that lifts export competitiveness, and the fiscal thrust embedded in President Donald Trump's "One Big Beautiful Bill."

Slok estimates that legislation alone will add approximately 0.9% to GDP growth in 2026. Combined with AI-driven capital expenditure — which is reshaping demand for power, semiconductors, and real estate — the cumulative stimulus is proving difficult for the economy to absorb without generating price pressure. "We're moving from that stagflationary outlook that most people had going into this year, to now turning into instead an overheating outlook," Slok said.

Inflation Risk and the Fed's Response

The inflation risk Slok identifies is not theoretical. The Federal Reserve, at its June 17, 2026 meeting — the first chaired by Kevin Warsh — held its benchmark rate unchanged at 3.50%–3.75% in a unanimous 12-0 vote. More consequentially, the central bank revised its 2026 PCE inflation forecast sharply higher, to 3.6% from a prior estimate of 2.7%, reflecting supply-side shocks across energy and other sectors, including the geopolitical disruption stemming from the Iran conflict.

The Fed's updated "dot plot" — its projection grid for the funds rate — erased the one rate cut that had previously been penciled in for 2026. Nine officials now see at least one 25-basis-point rate hike this year, with six projecting two or more. Federal funds futures are pricing a hike as early as September. The median funds rate projection for year-end stands at 3.8%, signaling the tightening bias has returned to the foreground.

Slok had anticipated this shift. In March 2026, he told CNBC that "the risk now is that the economy may begin to accelerate," and in April he warned that markets were still underestimating the persistence of inflation risk in the system. Inflation, he noted, was being driven not only by tariffs but by labor market tightness that immigration restrictions have intensified and by energy prices that, even if their spike proves temporary, are compounding underlying price pressures that were already running above the Fed's 2% mandate.

Growth Drivers in Focus

GDP growth through mid-2026 reflects these forces. Third-quarter 2025 GDP rose 4.3% on an annualized basis; the Atlanta Fed's GDPNow model was tracking a 5.1% pace entering the fourth quarter. Even accounting for modest deceleration in the first half of 2026, the underlying run rate of the US economic growth engine remains well above the Fed's estimate of long-run potential, estimated at roughly 1.8%.

Strategic Context

The overheating economy thesis carries implications beyond monetary policy. For corporate executives, sustained above-trend growth means continued labor market tightness, upward wage pressure, and input cost volatility — conditions that compress margins for companies without pricing power. For institutional investors, the repricing of rate-cut expectations has already reverberated through bond markets, with Treasury yields moving higher and equity valuations under renewed scrutiny.

Slok also highlighted the national debt as a structural constraint. With U.S. federal debt at approximately $39 trillion, the government's fiscal space to respond to any future downturn is more limited than at any prior point in modern history — a point he made in May 2026 research. That asymmetry reinforces the urgency of the Fed's credibility challenge: letting the overheating economy persist risks entrenching inflation expectations above 2%, making the eventual correction more severe.

What Comes Next

Markets are closely watching the September FOMC meeting as the first live candidate for a rate hike. The trajectory of oil prices, labor market data, and any evolution in tariff policy will shape whether the Fed moves or pauses. Slok's framework suggests the bias toward action will remain elevated as long as AI investment, fiscal spending, and a weaker dollar continue to reinforce demand.

Outlook

The US economic narrative in mid-2026 has completed a full rotation. The overheating economy that Torsten Slok Apollo research anticipated has arrived, with inflation near 3%, GDP growth well above trend, and the Federal Reserve signaling that its next move is more likely a hike than a cut. The inflation risk identified by Slok positions the U.S. in a delicate stretch: strong enough to generate broad prosperity, but running too hot to justify the monetary easing that equity and credit markets had spent much of the past year pricing in.

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