Oil Prices Climb as Wall Street Drifts, Eyes on Fed’s Interest Rate Decisions
Wall Street was seen drifting on Monday, with the S&P 500 slightly down by 0.1% in early trading, following its second consecutive losing week. The Dow Jones Industrial Average was up by 22 points or 0.1%, standing at 34,640 as of 9:45 a.m. Eastern time, while the Nasdaq composite was also down by 0.1%.
This market behavior comes amidst rising oil prices that continue to exert pressure on inflation. A barrel of U.S. crude rose another 0.9% on Monday to $90.79, up from less than $70 in July. Brent crude, the international standard, added 0.7% to $94.62 per barrel. This surge in fuel prices has been a significant factor in accelerating inflation last month to 3.7% from 3.2%.
The market has been fluctuating since early August due to uncertainties regarding the Federal Reserve's interest rate policies. Traders are almost universally expecting the Fed to maintain steady rates at its meeting this week, which concludes on Wednesday.
However, increased attention will be directed towards the forecasts that Fed officials will release about their expectations for interest rates, the economy, and job market trends in the coming years. One particular point of interest will be how high officials at the Fed anticipate their main interest rate will rise this year.
According to data from CME Group (NASDAQ:CME), traders are estimating a roughly 40% chance that the Fed will hike rates again in either November or December of this year. On the other hand, investors are expecting the Fed to start slashing interest rates next year – a move that typically loosens financial conditions and provides a boost to financial markets.
Economists at Goldman Sachs predict that Fed officials will signal a full percentage point of cuts next year, following one more rate increase this year to a range of 5.50% to 5.75%. However, there are strong concerns that rates may have to remain higher for a longer period to bring inflation down to the Fed's 2% target.
The rise in fuel prices and worries about prolonged high rates have contributed to pushing up Treasury yields across the bond market. The 10-year Treasury yield was holding steady at 4.33%, where it was late Friday, but it has been mostly climbing since sitting around 3.40% in May. The two-year Treasury yield, which more closely tracks expectations for the Fed, was holding steady at 5.04%.
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