The US economy is in a Goldilocks period, and the Fed has a 'loaded gun' it can use if conditions worsen, Apollo co-president says

• The Fed has a "loaded gun" it can use if the Goldilocks economy worsens, Apollo Asset Management's co-president said.
• That's as the central back has kept rates high, giving policymakers room to lower them.
• "I would argue that the Fed put is back, sort of, on the market right now," James Zelter told Bloomberg TV.

A year ago, Wall Street was convinced a recession was coming. But as 2023 comes to a close, the US is standing on strong economic data and markets have embarked on a turbo-charged rally.

Should that trend whipsaw, Wall Street is betting that the Fed will step in and lend a helping hand, according to Apollo Asset Management Co-president James Zelter.

"We're sort of in this interesting Goldilocks period right now," he told Bloomberg TV on Tuesday. "Concern about a slowdown has been on everybody's mind the last six, seven months. The Fed's done a really nice job of maintaining higher rates. So I would argue that the Fed put is back, sort of, on the market right now."

The so-called Fed put is the belief that the central bank will step in to prevent a sharp decline in the markets or the economy beyond a certain level.

Zelter noted the Fed has maintained "fairly high rates," which currently stand at 5.25%-5.5% — the highest since 2001 .

"And if there were any kind of challenging economic backdrop, the Fed does have a loaded gun that they can use as needed and as appropriate," he added, though he doesn't think that's going to happen.

After a series of rate hikes beginning in March last year, the central bank has mostly tamed high inflation in the wake of the pandemic. At the same time, unemployment numbers remain close to historic lows, and GDP growth stays robust.

Those Goldilocks conditions have helped stocks rocket upwards, as markets bet on the end of the Fed's rate hikes.

But some experts like Mohamed El-Erian say the markets and the economy face headwinds, as Goldilocks data won't last for long, Treasury yields are bound to tick upwards, and oil prices may swing higher.