Oil Falls Around 3% As Investors Eye US Fed Rate Hikes

With the US Federal Reserve’s upcoming interest rate hikes, investors are looking for a pause in the price of oil. However, investors aren’t giving up hope just yet. With a 3% drop, oil prices could be capped by the July 4 holiday. Investor sentiment remains tepid amid concerns over the US economy and the prospect of further rate hikes. On Wednesday, Fed Chairman Jerome Powell said he was committed to keeping prices under control.

Investors’ attention has also turned to the escalating conflict in the Ukraine and Russia. This is also reflected in the market’s recent decline. Concerns about the Fed’s ability to control inflation have caused the market to fall. Oil prices were temporarily lifted by the announcement of US President Joe Biden’s call for the suspension of the federal gasoline tax, but it is unlikely to provide the long-term boost investors seek. Investors also took note of a delayed release of weekly oil data from the US Energy Information Administration, which reflects concern about the Fed’s ability to control inflation.

This move is being seen as a sign that investors are taking the U.S. Federal Reserve’s upcoming moves to raise rates. The Fed has started letting trillions of dollars of bonds roll off its balance sheet, which will put upward pressure on longer-term interest rates. This is accompanied by a number of discouraging signs for the economy, including sagging retail spending and soured consumer sentiment. The Fed has already said three-quarter percentage point hikes would be rare, but this does not mean that the market is in for a crash.

Despite the market’s volatility and rising inflation, the Fed’s “diligent yet measured” approach to raising rates will have to be maintained. The Fed is expected to hike interest rates several more times this year. As long as the economy remains healthy and the Fed’s tightens the money supply, inflation will be contained. With this in mind, investors should focus on diversification of their portfolios. Adding stocks of high quality dividend-paying companies could be beneficial.

Despite recent market volatility, it should be noted that the market does not like uncertainty. As noted by Chris Hyzy, the Fed’s semi-annual monetary policy report is due on Wednesday. As this report is expected to reveal the Fed’s outlook, all eyes will be on Powell’s testimony. Powell’s testimony is likely to set expectations for the next rate hikes and the direction of policy.

Higher prices of food and energy will add to the burden of inflation. Meanwhile, increased food and energy prices will dampen consumer spending and dent business confidence. This could prompt aggressive Fed actions. Historically, five of seven recessions in the United States were preceded by food inflation. So, investors should wait for clarity on the Ukraine situation before betting on the markets.