After the March rate hike by the Federal Reserve, economists believe that the recent move by Saudi Arabia and several members of the Organization of the Petroleum Exporting Countries (OPEC) to cut oil production could complicate the mission of the central bank. Additionally, most of the market is pricing in another 0.25% hike for the May 3 FOMC meeting, and several analysts suspect it may be the last hike in quite some time.
Economists try to predict the Fed’s next decision: ‘Top rates are in sight’
This week, market investors are focused on several factors, including the Consumer Price Index (CPI) report and earnings reports from some of the largest banks in the United States. However, one of the biggest factors investors are considering will take place in 23 days when the Federal Open Market Committee (FOMC) meets to potentially raise the federal funds rate. According to CME Group’s statistics federal surveillance tool, there is a 66% chance that the Fed will raise the rate by 25 basis points (bp). By contrast, there is a 34% chance the Fed will not raise rates in May, and some believe that after a 25bp rate hike, May will be the last rate hike for 2023.
Although the Federal Open Market Committee (FOMC) will be monitoring this week’s CPI report, Wells Fargo senior economist Sarah House described how the recent decision by Saudi Arabia and OPEC to cut oil production oil could affect future Fed policy. “The Fed believes that OPEC decisions are mostly geopolitical, but they can affect the production of goods and the transportation of other items, so those higher oil prices can seep into that core component, which the Fed tends to focus on a little bit more in terms. to establish policies”, House explained to CNN reporter Bryan Mena.
economists respondent by Bloomberg Economics expect the fed funds rate to reach 5.25% by the end of 2023. Economist Anna Wong stated in the forecast: “We expect the Fed to raise another 25 basis points at its May meeting, when the upper bound of federal funds reaches 5.25%. With recent OPEC+ production cuts and the US labor market still tight, inflation is likely to remain around 4% in 2023 and prevent the Fed from cutting rates, as markets are currently envisioning.” . Wong added:
We see the Fed keeping rates at the maximum level this year, even as a mild recession is likely to unfold in late 2023.
Portfolio Manager Michele Morra at Moneyfarm believe that investors have shifted their focus away from inflation and are now fixated on a recession. With inflation slowing and “even taking into account more dovish monetary policy, the main focus is the recession,” Morra said. Bloomberg economist Tom Orlik believes the interest rate will soon peak for a number of reasons.
Economist Tom Orlik told Bloomberg Economics: “Since the beginning of the year, central banks have been battered by rival forces. A faster reopening of China, Europe dodging a recession and tight US labor markets argue for higher rates. The collapse of Silicon Valley Bank and Credit Suisse pushes in the opposite direction. So far, with limited signs of a broader banking crisis, it is the arguments for toughening up that are winning the day. The maximum rates are in sight, but we have not yet arrived”, added the economist.
What do you think of the economists’ predictions? What do you think will be the impact of the recent OPEC+ oil production cuts on future Fed policy decisions and how will it affect the economy and financial markets? Share your thoughts on this topic in the comments section below.
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