The US is headed for recession, but a key difference from past downturns could make it milder, Apollo chief economist says

• The US economy is headed for a recession, but it's likely to be milder than prior slumps, Apollo's chief economist said.
• That's because any potential slowdown this time around would be "engineered" by the Fed, Torsten Sløk told CNBC.
• When recession arrives, the Fed can undo the measures it took that initially slowed the economy, he added.

The last time the economy tanked, a deadly virus had forced the world to a grinding halt. The time before that, shoddy home loans caused the housing sector to collapse. The time before that, hype around the internet overinflated tech stocks.

Another recession is coming, but this time around the culprit is also the savior, making it a lot less harmful, according to Apollo Management's chief economist, Torsten Sløk.

"The slowdown we are talking about here is engineered by the Fed. This is manufactured by the Fed," he said in a CNBC interview on Wednesday. "The Fed is trying to slow the economy down, to slow inflation down."

Since March 2022, the Fed has hiked the fed funds rate 11 times, lifting it from near zero to 5.25%-5.5%. The hiked rates have jacked up borrowing costs for banks, businesses, and homeowners. It's jostled Treasury yields to multiyear highs and mortgage rates to multidecade highs.

In addition, the central bank has been shrinking its balance sheet as part of its quantitative tightening campaign, pulling more liquidity from the economy.

But that also means that if the economy sputters and begins contracting, the Fed has the ability to reverse the downtrend because they will undo the measures that slowed growth.

"Here today, this is all engineered by the Fed, the slowdown," Sløk said. "So, if things start to slow as they want, they will begin to turn around and therefore the slowdown is probably going to be milder than what we've seen in prior recessions."

So far, the economy has been largely resilient, but there are signs of cracking. For example, credit card and auto loan delinquency rates are on the rise. Meanwhile, bankruptcies are also climbing, which Sløk recently attributed to the Fed rate hikes.