After the Federal Reserve’s March rate hike, economists believe that recent moves by Saudi Arabia and several members of the Organization of Petroleum Exporting Countries (OPEC) to cut oil production could complicate the central bank’s mission. In addition, most in the market expect an additional 0.25% rate hike at the May 3 Federal Open Market Committee (FOMC) meeting, which several analysts believe may be the last rate hike for quite some time.
Economists try to predict the Fed’s next decision – “interest rates are peaking”
This week, market investors are focusing on several factors, including the Consumer Price Index (CPI) report and earnings reports from the largest banks in the United States. However, one of the biggest factors that investors are focusing on is the Federal Open Market Committee (FOMC) meeting on the 23rd, which could result in a hike in the federal funds rate, according to CME Group statistics. fedwatch tool, there is a 66% probability that the Fed will raise rates by 25 basis points (bps). Conversely, there is a 34% chance that the Fed will not raise rates in May, and after a 25 bps hike, some believe that May will be the last rate hike in 2023.
The Federal Open Market Committee (FOMC) is closely watching this week’s Consumer Price Index (CPI), and Wells Fargo senior economist Sarah House explained how the recent decision by Saudi Arabia and OPEC to cut oil production could affect the Fed’s future policy She explained. Housetold CNN that “the Fed views the OPEC decision as mostly geopolitical, but because of the impact it can have on commodity production and transportation of other commodities, these higher oil prices can bleed into core components that the Fed tends to focus on a bit more in terms of policy setting.” reporter Bryan Mena explained
The Fed is expected to keep rates at peak levels for the duration of this year, despite the possibility of a mild recession in late 2023.
MoneyFirm portfolio manager Michele Mora believes investors’ focus is shifting away from inflation and fixating on recession. With inflation slowing, “the main focus is on recession, even in light of more dovish monetary policy,” Mora opined. Bloomberg economist Tom Orrick believes interest rates will peak soon for a variety of reasons.
Economist Tom Orlik told Bloomberg Economics, “Since the beginning of this year, central banks have been swamped by rival forces. China’s resumption accelerating, Europe avoiding recession, and a tight labor market in the U.S. are all arguments for higher interest rates. The failures of Silicon Valley Bank and Credit Suisse are working in the opposite direction. So far, signs of a broader banking crisis are limited, and the tightening argument is winning. We are seeing interest rates peak, but we are not there yet,” the economist added.
What do you think about the economists’ predictions? How do you think this OPEC+ oil production cut will affect the Fed’s future policy decisions and the impact on the economy and financial markets? Share your thoughts on this topic in the comments section below.
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