What to expect from the forthcoming Fed meeting? How the latest OPEC agreement affected Oil prices?Posted on Wednesday, December 12 2018 at 3:43 pm GMT+0000
What to expect from the forthcoming Fed meeting?
Although the jobs report reversed some slowdown in the labor market, a 70% probability of a rate hike at the Fed meeting next week is still assigned.
No-hike by the Federal Reserve in December will mean that monetary policymakers are concerned about the economic situation, something that has not been mentioned so far. And this will bring Powell to the question about his complacency to Trump’s interventions about not raising interest rates.
Thus the second scenario for the Fed is to move forward by raising rates as expected. This scenario is supported by good economic figures. The unemployment rate is still at its lowest levels since 1969 (3.71), and inflation is also still stable.
The other scenario is the cautious lifting, in which the Fed will hike rates in December, but reduces its rate hike cycle for the next year under the pretext of stabilizing the pace of growth.
The surprising scenario for markets is No-hike one, which may be justified by the non-increasing inflation rates, as well as trade disputes with China and their potential impact on markets.
How the latest OPEC agreement affected Oil prices?
The recent output-cut agreement and cooperation between from OPEC and non-OPEC oil producers has succeeded in stabilizing oil prices somewhat after the sharp decline witnessed.
The producers agreed to cut production by 1.2 million barrels per day, a step that is considered important towards reducing the surplus in the markets. In addition to that, the agreement will reduce the uncertainty about the oil performance after the rise in Saudi and American production, and now, whatever the deficit or surplus expected, this agreement will reduce the sharp fluctuations in prices over the medium term.
But despite the advantages presented by the deal, it only limits supply and does not address the demand problem. The major challenge for oil prices is currently presented by the weak demand rates amidst a slowdown in global growth. So, no matter how low supply is, oil prices will not rise again before demand rates recover.