Rabobank planner: The market’s pricing of the Fed’s interest rate cut in 2024 is too aggressive and out of touch with the actual economy

Rabobank strategist Michael Every provides an in-depth analysis of Fed Governor Waller's speech on Tuesday.

Ivey said that first of all, it needs to be emphasized that the market's pricing of the Fed's interest rate cut in 2024 is too aggressive and is out of touch with the main performance of the actual economy, including new hedging, that is, the Fed's 50 basis points cut in March. Second, one must think about what drove the Fed to make dovish comments at the end of 2023, which triggered and is still triggering this crazy pricing. Third, one must deal with the Fed and others walking back all of these claims just a few weeks later.

"For economists, now is almost the best time. But how long can it last?" Waller said on Tuesday, adding that he only had between now and March to tell the market. As a result, bonds, stocks and just about everything except the dollar fell.

Waller added that he was more confident that the economy could still move in a perfectly deflationary direction, that financial conditions remained restrictive (although the reaction to the ups and downs since Powell turned dovish was a reflex), and that if Inflation is performing well, including next month's revision of the CPI methodology, and the U.S. is still on track to get three rate cuts later in 2024.

However, we are currently in the midst of an election cycle in the United States, and are faced with the challenge of dealing with $12,000 in student loans.

Worrall also mentioned the Red Sea, where behavior is indeed worrying - but equally worrying is his view that there will only be one price impact if the Suez Canal remains closed. It looks as if he has not learned the lessons of the last shipping supply shock crisis.

    

Meanwhile, the Houthis have launched more attacks on commercial shipping; Japan's NYK has shunned the Suez; Shell tankers have joined Qatari and Russian LNG carriers; and marine insurance rates have fallen from 0.1% of the value of the cargo soared to 1%, with some insurers reportedly avoiding underwriting US and UK (as well as Israeli) merchant ships for war risks - this includes their definition of a ship's "interests", which is a more beneficial than A more general term for the registration of title. Evi said this is because the US and UK have recently carried out airstrikes against the Houthis in an attempt to stop these shipping attacks, while the EU has distanced itself from them (to keep their insurance rates from rising).

Ivey also published an article about the escalating crisis (Same Deep Ship, Different Day). The article highlights that markets are ignoring how much worse things could get, how bad inflation could become, how difficult it will be to fix the problem, and how quickly people will become siled when it comes to protecting their maritime trade.

Everything that has happened or is happening and will happen in the market right now proves Evie's point. As has been shown, the crisis is getting worse.

*We see a warning that the moment is not far away when a Houthi attack on the Suez Canal will reduce all willingness to sail through the Suez Canal.

* Inflationary pressures are already emerging: (It is European customers who will see the Red Sea disruption the most: importing goods from Asia to Europe will cost more).

* Chevron warns of very real risks to oil prices: That will certainly happen if the Houthis turn their fire on Saudi Arabia again.

*Maersk says crisis could last for months. This may actually be optimistic.

* The United States has lowered expectations that air strikes will stop Houthi attacks as it approaches formal redesignation of them as a terrorist group. Indeed, without large ground forces, "the Houthis' hijacking of the world's economy," in the words of U.S. National Security Advisor Jake Sullivan, has no realistic military solution, given that Yemen has often given way to aggression in the past. Those who heard the news were frightened.

*Also, there is no realistic political solution. Instead, the analysis bears out that this is not just about Israel/Hamas, although that is thorny enough, but also about the geoeconomics/geopolitics of an Indo-Middle East economic corridor designed to bypass Iran. (“If you don’t work through us and our North-South Corridor ... we will ensure the safety of shipping between India-South Asia to the Red Sea and Europe.”) In fact, note that the U.N. Security Council condemned the Houthi attacks The resolution did not receive support from major Asian countries and Russia.

Evie noted that EU member states are supporting new naval missions in the Red Sea to try to keep their own goods flowing. However, it would be difficult for them to succeed where the U.S. Navy failed, and doing so would cost Europe very much in the long run.