Fed's Bostic sees higher rates; BoE's Broadbent hints at cut

Fed's Bostic anticipates higher "steady state" for interest rates

Atlanta Fed President Raphael Bostic indicated that the future "steady state" for US interest rates is likely to be higher than in recent years, potentially reaching levels comparable to those of the 1990s. He reiterated that "nothing has changed" regarding his belief that only one interest rate cut will be necessary in 2024, amid a continuing but uneven slowdown in inflation.

Following these remarks, the yield on the US 10-year Treasury note rose to 4.45%, rebounding from a one-month low of 4.33% last week, as traders reassessed their expectations for rate cuts. The probability of a rate cut in September now stands at 62%, down from 64% earlier in the day, while the likelihood for November is at 74%, compared to 77%.

Fed Vice Chair Michael Barr, speaking today, acknowledged that while inflation has declined from its peak, it has "not yet reached the 2% target." He described the inflation readings for the first quarter as "disappointing," echoing sentiments from the recent FOMC statement. "These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy by reducing the federal funds rate," Barr noted. He added that the Fed's restrictive policy would need "some further time to continue to do its work" in bringing inflation down.

BoE's Broadbent signals potential summer rate cut

In a speech today, Bank of England Deputy Governor Ben Broadbent suggested that if current forecasts hold, indicating that monetary policy will need to become "less restrictive at some point," a rate cut could occur "over the summer." Broadbent observed that the direct impacts of the pandemic and the war on inflation have diminished, leaving behind "more persistent second-round effects" on domestic inflation from these earlier shocks.