The US Federal Reserve’s decision to keep rates high means it has a “a loaded gun that they can use as needed” if economic conditions worsen, according to James Zelter.

“Concern about a slowdown has been on everybody’s mind the last six to seven months,” the Apollo Asset Management co-president said in an interview on Bloomberg TV. “The Fed’s done a really nice job of maintaining higher rates.”

Zelter said the so-called Fed put, a belief that the central bank will always be there to prop up financial markets when things get seriously ropey, is back in the market right now.

However, the cost of capital is going to be higher for the next five to seven years, he added.

“Clearly we’re concerned about certain parts of the economy that probably overearned during Covid,” said John Zito, Apollo’s deputy CIO for credit, also speaking to Bloomberg. “You’re going to see totally different mini economies,” he added, referring to regions in the US that will struggle.

While post-financial crisis regulation had largely delivered by shifting risky assets away from the banking system, Zito said, he suspected defaults will rise and certain sectors will suffer losses.

Zelter said it was unlikely that a macroeconomic event like the 2008 crisis will happen again after policymakers moved risky loans into private markets.

He reiterated his view that private credit is a $40 trillion opportunity, including not just the directly originated loans that people consider private credit today, but also areas such as solar finance, trade finance and franchise finance.

This article was provided by Bloomberg News.