After the rate hike by the Federal Reserve in March, 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 central bank’s mission. In addition, the majority of the market is pricing in another 0.25% increase for the May 3 Federal Open Market Committee (FOMC) meeting, and several analysts suspect it could be the last increase for a long 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 watching will take place in 23 days when the Federal Open Market Committee (FOMC) meets to potentially raise the federal funds rate. According to statistics from CME Group’s Fedwatch tool, there is a 66% chance that the Fed will raise interest rates by 25 basis points (bps). 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, May will be the last hike for 2023.
Although the Federal Open Market Committee (FOMC) will monitor 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 could affect the Fed’s future policy. “The Fed sees OPEC decisions as mainly geopolitical, but they can affect the production of commodities and the transportation of other commodities, so the higher oil prices can bleed into that core component, which the Fed tends to focus on a little bit more when it comes to set policy,” House explained to CNN reporter Bryan Mena.
Economists surveyed by Bloomberg Economics expect the federal funds rate to reach 5.25% by the end of 2023. Economist Anna Wong stated in the forecast: “We expect the Fed to hike another 25 basis points at the May meeting, reaching the upper bound of fed funds rates reach 5.25% With the recent OPEC+ production cuts and the still tight US labor market, inflation is likely to stay close to 4% in 2023, keeping the Fed from cutting rates as markets currently predict Wong added :
We see the Fed keeping interest rates at peak levels through this year, although a mild recession is likely to develop in late 2023.
Portfolio manager Michele Morra at Moneyfarm believes that investors have shifted their focus away from inflation and are now fixated on a recession. With inflation easing and “even allowing for a more dovish monetary policy, the main focus is recession,” Morra said. Bloomberg economist Tom Orlik believes that interest rates will soon peak for various reasons.
Economist Tom Orlik told Bloomberg Economics: “Since the start of the year, central banks have been hit by rival forces. Faster reopening of China, Europe avoiding a recession and tight US labor markets all argue for higher rates. The collapse of Silicon Valley Bank and Credit Suisse pull in the opposite direction. So far, with limited signs of a broader banking crisis, the case for tightening is winning the day. Peak rates are in sight, but we’re not quite there yet, the economist added.
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Anna Wong, Banking Crisis, Benchmark Rate, Bloomberg Economics, Bryan Mena, Central Bank, China reopening, CME Group, CNN, credit suisse, Decision Making, economy, Europe, Fed, Federal Funds Rate, Federal Reserve, Fedwatch tool, Focus , Forecasts, inflation, interest rate, Investors, market, May meeting, Michele Morra, Monetary policy, Moneyfarm, oil production, opec, peak interest rates, portfolio manager, interest rate increase, recession, Saudi Arabia, senior economist, Silicon Valley Bank, Statistics, Tom Orlik, American labor markets, Wells Fargo
What do you think of the economists’ predictions? What do you think the impact of the recent OPEC+ oil production cuts will be on the Fed’s future policy decisions and how will it affect the economy and financial markets? Share your thoughts on this topic in the comments section below.
Jamie Redman
Jamie Redman is the news editor at Bitcoin.com News and a financial technology journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open source and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
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