Interest Rate Hike Hits Oil Hard
Oil prices have been slammed over the past week, dragged down by a variety of forces, including soaring U.S. shale production, higher-than-expected output from Russia, and worries about global demand. On Wednesday, the U.S. Federal Reserve decided to pile on.
The central bank hiked interest rates by a quarter-point yet again, the fourth time this year. That was largely expected. But the details that market watchers were more concerned with were the Fed’s intentions for 2019. Fed chairman Jerome Powell, in the face of withering pressure from the White House, signaled his intention to hike rates two more times in 2019. To be sure, that was down from a previous plan of three rate increases, but it wasn’t exactly the pullback that President Trump had wanted. Powell dismissed questions about political pressure from the President, saying that “nothing will cause us to deviate from” the job at hand.
“Inflation has still remained just a touch below two percent. So I do think that gives the committee the ability to be patient in moving forward.” Powell told reporters. He noted that there are some warning signs in the global economy, but that U.S. “economic activity has been rising at a strong rate,” which made the bank comfortable with its decision to continue with its monetary tightening policy.
The central bank made some slight tweaks to its forward-looking language, suggesting that it may ease up on interest rate hikes if the economy deteriorates.
Still, stocks plunged on the news, as did crude oil. As of Thursday, WTI was down close to $46 per barrel and Brent was hovering at about $55 per barrel, the lowest levels in 15 months. “[M]any market participants clearly still believe the Fed’s view is overly optimistic, as US stock markets came under pressure amid fears of excessive tightening of monetary policy and bond yields fell,” Commerzbank said in a note.
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