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Futures are poised for a negative start to the US week as European and Asian equities generally traded lower while US markets were closed yesterday. Oil prices along with interest rates have been moving higher this morning, but the Empire Manufacturing report for January which was just released came in significantly weaker than expected, and that could help to keep a lid on rates. While economists were forecasting the headline reading to come in at around -3, the actual reading was much weaker falling to -43.70. Just to put some perspective on that number, the only time it was lower was during the depths of the Covid lockdowns in early 2020, and the only time the report missed expectations by a wider margin was in April 2020.

Atlanta Fed President Bostic was interviewed in the FT over the weekend, and he suggested that any potential rate cuts from the Fed would be unlikely until at least the summer. That has let some air out of the rate cut pricing balloon this morning relative to last Friday (blue vs yellow bars below), but only by a little bit. In the short-term, markets are pricing in 1.8 25 bps rate cuts between now and the May 1^st meeting which is slightly less than where things stood at the January meeting but still well above where the market was at the end of October.

Longer-term, pricing of cuts remains aggressive with 6.4 25 bps cuts priced in between now and the 12/18/24 meeting. That’s down from 6.7 last Friday but still slightly above where things stood at the end of last year and well above the 5.9 cuts that were priced in as of December.

Bostic is a voting member of the FOMC this year, so his comments certainly carry weight and looking ahead, investors will be focused on a speech today at 11 AM Eastern where he will be speaking at the Brookings Institution on his economic policy outlook. Back in November, Waller commented that he was confident that Fed policy was well positioned to slow the economy and get inflation back down to its 2% target and even envisioned a scenario where the Fed could be cutting rates within the next three to five months.

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