The Federal Reserve recently raised the interest rates. However, a decision by Saudi Arabia and some other oil producers to reduce their production of oil could be an obstacle for the Fed’s plans. Most markets are predicting that the Federal Open Market Committee will raise the rate by another 0.25% at their next meeting on May 3rd, after which they might not raise it again for a while.
How the OPEC+ Oil Production Cuts Can Impact Fed’s Economic Decisions and Our Economy
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This week, investors who buy and sell stocks are keeping a close eye on some important numbers. For example, there’s the Consumer Price Index and earnings reports from big banks in the USA. But one of the main things they’re thinking about is what will happen 23 days from now when people meet for the Federal Open Market Committee (FOMC). According to CME Group’s Fedwatch tool, it looks like there’s a 66% chance the FOMC group will raise the federal funds rate by 25 units that day. However, some people think that even if this happens, it might be the last time for such a rate hike this year.
This week, the Federal Open Market Committee (FOMC) will be taking a close look at the consumer price index. But Wells Fargo’s senior economist Sarah House explained how the decision by Saudi Arabia and other countries in OPEC to cut oil production could influence future Fed policy decisions. She said that these changes usually involve politics but it can still affect how goods are made and shipped, which brings up prices – and that’s something the Fed is more likely to pay more attention to when they make their next move.
Economists who’ve been surveyed think that the interest rates from the government are going to reach 5.25% by the end of 2023. Anna Wong, an economist, said in her prediction that at May’s meeting the interest rate will go up for an extra 25 points to be 5.25%. They believe this because OPEC+ manufactures have cut back on production and there is still a tight labor market with inflation almost reaching 4% in 2023- which means presumably no more rate cuts anytime soon from the Fed according to financial markets predictions.
“The Federal Government plans to keep the interest rates at their highest point until the end of 2021, even though it is likely that there will be a small downturn in our economy at the end of 2023.”
Michele Morra, a portfolio manager at Moneyfarm, believes that investors have changed their focus from inflation to worrying about an upcoming recession. Inflation is decreasing and even with more relaxed monetary policies, the main concern of investors is still a recession. Bloomberg economist Tom Orlik agrees that interest rates will reach a peak soon for different reasons.
Tom Orlik, an economist, said that although central banks have heard two conflicting ideas this year – one being faster opening up in China, another Europe avoiding a recession while U.S having limited number of jobs which suggests raising rates – the argument for raising rates has been more successful than trying to prevent a financial crisis. He also mentioned that though there is still some time before the peak rate is hit, it might come soon.
What do you think about what the economists said? What could be the effect of OPEC+ oil production cuts on future decisions made by the Fed, and how will it affect our economy and financial markets? If you have any ideas or opinions related to this topic, let us know in the comments section below.