Investors are placing overly high expectations on multiple rate cuts by the Federal Reserve over the next 12 months, Apollo Global Management Inc. Co-President Scott Kleinman said.

Futures traders are pricing in 10 quarter-point cuts to the cash rate over the coming year by US monetary policymakers. Kleinman said that would be unlikely without a recession, and yet markets more broadly aren’t explicitly pricing in an economic contraction, he said.

The New York-based firm’s own central view is that the country will avoid such a fate and that brewing wage inflation and housing inflation will limit how much the Fed will be able to reduce its rates settings, he said.

“Nothing points to why rates will be falling massively other than people’s expectations they will,” Kleinman told the Livewire Live investment conference in Sydney on Tuesday. “You have markets that have become so accustomed to up-and-to-the-right that these markets just want to believe.”

As of Monday, investors saw roughly even odds for the Fed cutting by a quarter- or half-point. The central bank’s officials will issue their policy decision on Wednesday at the conclusion of their two-day meeting.

Investors have been conditioned to expect asset price appreciation due to an economic expansion that begun more than 14 years ago compared with a typical economic cycle of six to eight years, he said.

In the absence of a recession, Apollo is observing an economy that is simply growing more slowly than it was at the beginning of the year.

“The market is geared for pretty good outcomes and pricing for perfection and there’s a lot of room for things going the other way,” Kleinman said.

  - Bloomberg