Fed Keeps Rates on Hold, Oil Prices Slide for Third Consecutive Session

Oil prices fell for the third straight day on Wednesday, amid expectations that the Federal Reserve may keep US interest rates high for longer due to persistent inflation, which could impact fuel usage in the world’s largest oil consumer. Federal Reserve policymakers said on Tuesday the US central bank should wait several more months to make sure inflation is indeed back on track to its 2% target before cutting interest rates.

Higher borrowing costs could slow economic growth and dent demand for oil. Investors await the minutes of the Fed’s latest policy meeting and weekly US oil inventory data from the Energy Information Administration due later Wednesday.

On the other hand, European Central Bank President Christine Lagarde said in an interview broadcast on Tuesday she was “really confident” that inflation in the euro zone was under control. Meanwhile, US crude oil and gasoline inventories rose last week, while distillates fell, according to market sources citing American Petroleum Institute figures on Tuesday.

Oil Prices Now

Brent crude futures fell 1.32% to $81.78 a barrel. While US West Texas Intermediate (WTI) crude futures declined 1.4% to $77.56 a barrel by 10:56 AM Riyadh time. Oil prices had slipped about 1% on Tuesday.

Gold Dips as Eyes Turn to Key Upcoming Event

Gold prices fell but hovered above the key $2,400 level in trading on Wednesday as investors await the minutes of the Federal Reserve’s latest policy meeting for fresh clues on the timing of US interest rate cuts.

“Gold is supported by the debasement of currency that has been done by the US and developed nations because of the high budget deficits,” he said. The minutes of the Fed’s May policy meeting are due at 6:00 PM GMT. Traders currently see a 64% chance of a rate cut by September.

Recent data showed US inflation resumed its downward trend, but Federal Reserve policymakers said on Tuesday the central bank should wait several more months to ensure inflation is indeed back on track to the 2% target before cutting interest rates. As falling interest rates and geopolitical uncertainty make the bullion an attractive investment.

Gold and Dollar Now

Gold futures are now down 0.24% to $2,420 an ounce. While spot gold is off about 0.19% to $2,416 an ounce. On the other hand, the dollar index is down about 0.04% to 104.520 points.

Other Metals

Spot silver fell 0.8% to $31.70 after hitting its highest in over 11 years on Monday. Platinum rose 0.3% to $1,049.55 and palladium fell 0.8% to $1,017.73.

Fed Official: Keeping Tight Policy Not a Big Risk

Cleveland Fed Governor Loretta Mester said on Wednesday morning that keeping policy tight is not a big concern given the strength of the US labor market. Also, Mester made the following statements:

I expect real GDP growth to be above trend this year.

  • It’s not clear where inflation is headed.
  • Inflation will come down, but it will take time.
  • Keeping the Fed at tight policy levels is not a big risk right now given the strength of the labor market.
  • The policy stance is good, but the Fed needs to watch the data.
  • I expect policy to be less tight than expected.
  • We need to see inflation data for a few more months.

Mester’s comments were largely in line with recent statements by other Fed officials who have adopted a more cautious approach following the release of April inflation data that raised hopes of interest rate cuts later this year.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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