Fed President Bostic Projects Rate Cuts to Commence in Q3

Long-term rates rise after further momentum builds against early 2024 rate cuts. The yield curve steepened today after initial jobless claims and housing starts figures revealed US economic resilience, while Fed President Bostic argued against early 2024 rate cuts. Short-term rates closed little changed and long-term rates ended as many as 5bps higher. Equities rebounded on a tech rally, led by Apple after a BofA ratings boost and a rosier outlook for chipmakers. The NASDAQ rose 1.35% while the SPX rose nearly 0.90%. Meanwhile, crude oil rose after the International Energy Agency raised its 2024 global oil demand estimates and announced that US oil supply declined last week.

Atlanta Fed President Bostic expects rate cuts to begin in Q3 2024. Fed President Bosticis now the second policy voter this week to suggest that rate cuts will begin later than currently priced in. After Fed Governor Waller said on Tuesday that he sees “no reason to move as quickly or cut as rapidly as in the past”, Bostic stated that he projects the initial rate cut to ensue in Q3. He added that “evidence would need to be convincing” to consider earlier cuts, though he acknowledged that progress with disinflation has surprised to date.

Houthi conflict continues to boil, while new tensions arise elsewhere. Following a drone assault by Houthi rebels on a U.S.- owned transport ship, the U.S. launched counterstrikes last night as part of a broader effort to suppress attacks on sea-shipping lanes. Continued Houthi attacks on commercial sea vessels have caused shipping costs to soar in recent weeks. Currently, the cost to ship a 40-foot container between China and the Mediterranean is ~$5,440, up from ~$2,400 for the week starting 12/31/2023. Separately, a new conflict between Pakistan and Iran threatens escalation. Yesterday, Iran attacked separatists on Pakistani territory, and Pakistan responded today by launching strikes against militants hiding out on Iranian soil. The countries have had traditionally strained relations, and their common ally China has called for “restraint and calmness.”