Atlanta Federal Reserve Bank President Raphael Bostic told CNBC he only sees one rate cut this year, occurring in the fourth quarter. Bostic, who tends to be more hawkish, is concerned inflation won't come down as fast as many are hoping. In their latest Summary of Economic Projections, most officials see three rate cuts this year.
As Yahoo Finance's Josh Schafer explains in the video above, it may actually be a good thing if the Fed can't cut in June.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
Editor's note: This article was written by Stephanie Mikulich
Video Transcript
BRAD SMITH: Well, futures are following this morning as the major indexes head for another day of declines, a rough start to the second quarter in 2024 as investors are considering the Fed's path towards rate cuts. A strong economic data continues to come in. Atlanta Fed President Raphael Bostic saying that this morning, he sees only one rate cut this year occurring in the fourth quarter. Joining us now to discuss the data we've received so far this week and what it's telling us about the path forward for rate hikes, we've got our very own Josh Schafer. Josh, what are we seeing?
JOSH SCHAFER: Brad, one cut. That's different than what we've heard from a lot of other Fed presidents, right? So far, the Fed speak this week has sort of reiterated, I would argue, probably the three cut narrative and probably a little bit more confidence in inflation data, but maybe a cut actually in Q three not Q4. Of course, Bostic has been a little bit more hawkish, so maybe not exactly shocking to hear that coming from him.
But overall, I would say the data has showed us that the inflation concerns that people have are certainly there when we think back to the January, February inflation readings we had, even that ISM print that we had earlier this week. Investors really seem to latch on to the prices paid part of that came up. Also came up in the S&P Global PMIs. So you saw different versions of inflation measures come up.
I should note, though, plenty of economists coming out and saying that those don't actually feed into PCE or core PCE. So if you're one of those people that loves to talk about the Fed's preferred inflation gauge and core PCE, then maybe that actually doesn't matter for that. Also what we're showing on your screen now, we're showing the manufacturing index expanding. It got over 50 for the first time in a year and a half, entering expansion mode.
And guys, I think one of the broader takeaways I have from the data this week, including that JOLTS report would be the economy is still resilient. And given the sticky signs of inflation, that's a good thing because we have inflation at a sticky point here so the Fed's not going to want to cut. You want the labor market to hold up.
And you want the manufacturing sector, which has been in contraction for almost two years to start coming up. That is a good story overall for the economy, even if it pushes back your June rate cut prediction to July. I don't think it matters that much. It's better than seeing something like a crazy soft jobs report on Friday.
SEANA SMITH: It is, obviously. You always have to laugh at the fact that, when you see the markets cheer any weak economic data because it's kind of missing the broader picture of exactly what's to come, maybe it could be good news here. Good news in the short term just in terms of the initial reaction.
But obviously longer term when you look down, the road there could spell much larger problems than what we could potentially be dealing with today. But Josh, square what we're seeing here with the reaction that we've seen in the market and how much of that could possibly be an overreaction, given the fact that the economy and the economic data that we've seen, once again, it seems like up until this point, remains resilient.
JOSH SCHAFER: So we've essentially been talking on air for, I guess-- we're three months into the year, so I'll call it almost all three months. It's outside of maybe the first week of trading of, we need some sort of catalyst to bring us lower, right? What are we going to get? What are we going to get? And it seems like we finally got a little bit of something for people to latch on to.
If you wanted to sell, if you owned one of these stocks that has just absolutely ripped to start the year, maybe that's a time to get out of that position, right? And that's not a hard thing to really see here and understand. You've all seen the 10-year rip, though. Like the 10-year is up to its highest level since November. I think you could debate sort of what's driving that.
Is it strong economic data? Is it inflation expectations? Is it worries about the Fed? Is it just overall the government debt situation? Like there are a lot of things that can move the 10-year. And I thought Liz Ann Sonders on air yesterday put that in good perspective saying this isn't just a hot inflation reading in a manufacturing index and the 10-year spikes. That does not do that. And so overall, that is not really how necessarily I would dumb that down.
But I would argue when you see the 10-year go up 12 basis points in a day, anyone that has followed the stock market over the last year should not be surprised to see equities down. That has been the trade. And so if we're going to keep seeing the 10-year pushing higher, creeping higher, some investors are going to start to get worried there, I think.
BRAD SMITH: Yeah. It's going to be a larger question, especially going into Friday's employment situation print as well, how investors continue to evaluate this. I mean, we've got essentially the employment situation weak, if you want to call it that. JOLTS yesterday. Today ADP.
JOSH SCHAFER: Every week.
BRAD SMITH: We were in the makeup room, Josh sitting there listening in to the ADP call.
SEANA SMITH: It's been a busy week for him.
[INTERPOSING VOICES]
BRAD SMITH: For those of you who are tracking paychecks out there, we got that too on the small business side this morning. Just anywhere you look, you get it.
SEANA SMITH: We got to let you go. We got a lot of work to do.
JOSH SCHAFER: Let's go write some stories. Let's go write some stories.