Following the March rate hike by the Federal Reserve, economists said recent moves by Saudi Arabia and several members of the Organization of the Petroleum Exporting Countries (OPEC) to cut oil production could complicate the central bank’s mission. Additionally, most markets are pricing in another 0.25% hike ahead of the Federal Open Market Committee’s (FOMC) meeting on May 3, and several analysts suspect this could be the last hike for some time.
Economists try to predict Fed’s next decision – ‘Peak rates in sight’
This week, market investors focused on a number of issues, including the Consumer Price Index (CPI) report and earnings reports from some of the largest US banks. However, one of the biggest factors investors are looking at in 23 days is when the Federal Open Market Committee (FOMC) meets to potentially raise the federal funds rate. There is a 66% chance the Fed will raise rates by 25 basis points (bps), according to statistics from CME Group’s FedWatch tool. Conversely, there is a 34% chance that the Fed will not raise rates in May, and some believe that after a 25 bps rate hike, the last hike will be for May 2023.
While the Federal Open Market Committee (FOMC) will monitor this week’s CPI report, Wells Fargo senior economist Sarah House describes how recent decisions by Saudi Arabia and OPEC to cut oil production could affect the Fed’s future policy. “The Fed views OPEC’s decisions as mostly geopolitical, but they can affect the production and transportation of other items, so those higher oil prices can bleed into that key component, which the Fed tends to focus a little more on in terms of policymaking,” House explains to CNN reporter Brian Mena.
Economists surveyed by Bloomberg Economics expect the federal funds rate to reach 5.25% by the end of 2023. Economist Anna Wang said in the forecast, “We expect the Fed to hike another 25 basis points at its May meeting, when the upper limit for the Fed funds rate reaches 5.25%. With recent production cuts by OPEC+ and the US labor market still tight, inflation will likely stay close to 4% in 2023 and keep the Fed away from cutting rates, as markets are currently predicting.” Wong added:
We see the Fed holding rates at their highest levels for the duration of this year, even with the possibility of a mild slowdown in late 2023.
Michele Mora, portfolio manager at Moneyfarm, believes investors have shifted their focus away from inflation and are now fixated on recession. With inflation slowing and “even if more dual monetary policy is taken into account, the main focus is recession,” Mora opined. Bloomberg economist Tom Orlick believes interest rates will soon peak for several reasons.
Economist Tom Orlick told Bloomberg Economics, “Since the beginning of the year, central banks have been dogged by competing forces. A fast China reopening, Europe avoiding recession and a tight US labor market all argue for higher rates. The declines of Silicon Valley Bank and Credit Suisse are pulling in opposite directions. So far, with limited signs of a wider banking crisis, it is the argument for tightening that is winning the day. Peak rates are in sight, but we are not there yet,” the economist added.
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What do you think about the predictions of economists? How do you think the recent OPEC+ oil production cuts will affect the Fed’s future policy decisions and how it will affect the economy and financial markets? Share your thoughts about this topic in the comments section below.
Jamie Redman
Jamie Redman is the News Lead for Bitcoin.com News and a financial technology journalist based in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code and decentralized applications. Since September 2015, Redman has written over 6,000 articles for Bitcoin.com News about disruptive protocols emerging today.
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