Why the Fed may not be worried about high oil prices yet

The Federal Reserve announced it will keep rates steady, with a possibility for another rate hike down the road. With gas prices rising, student loan repayments resuming, workers' strikes, and a potential government shutdown, there's a lot of uncertainties for investors to consider. Another one of them is what the Fed will do at their November meeting.

Peter Tchir, Head of Macro Strategy for Academy Securities and Yung-Yu Ma, U.S. Chief Investment Officer of BMO Wealth Management, join Yahoo Finance to discuss their predictions for the Fed's next move and how markets are reacting to all the latest financial headwinds. When asked about the central bank's options going forward, Ma explains that the Fed will have to pay attention to these headwinds saying "its definitely still data dependent whether or not the Fed raises rates again...cutting rates is far out prospect at this point."

Tchir says when it comes to higher oil prices, he thinks the Fed will be "reluctant" to try to deal with them through monetary policy, adding that prices may have to be higher until January or February for the Fed to become concerned.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Peter, let me start with you because Powell, at least to me, was very clear in his message yet the market still doesn't seem to be fully buying in. Why do you think that is?

PETER TCHIR: I actually don't think he was quite that clear. I think what he's clear to me is it's an extremely high hurdle for them to cut. So they're not going to cut. But I think it's actually a pretty high hurdle for them to hike even more than once. And I don't even know if they'll get there.

I think they're gonna be very data dependent. And when they say data dependent, they always have a bias. And for much of the last two years, the bias was any data that gave them an excuse to hike, they were gonna take that. I think they're looking for any data that says, hey, we can wait another month. We can wait another meeting or two to do anything. That's what they're looking for. And I think the market's gonna deliver that sort of mixed data.

BRAD SMITH: Yung-Yu, what do you believe here? As we get another meeting or two, we get that much closer to next year and where the Fed ultimately decides where a hold or perhaps even a cut should be entering into the conversation.

YUNG-YU MA: Well, definitely still data dependent whether or not the Fed raises rates again. I think, as was mentioned, that cutting rates is a far out prospect at this point and really one that's off the table. And that's something that also markets are reacting to.

But I think also that the headwind in markets right now and why you're seeing that pricing and the futures market not believing that the Fed is going to cut rates is because I think the futures market is seeing all the headwinds right now that the economy faces with student loan, repayments resuming, auto and credit card delinquencies rising, the looming government shutdown or possibility of that, high oil prices. I think the-- I think the market's realized that these headwinds are very meaningful and real here.

SEANA SMITH: Peter, sticking with what Yung-Yu just had to say about oil prices, right? Obviously, this could be a real challenge for the Fed trying to get inflation under control. How do you view that risk to the broader market and what that could signal even for the economy as well when you factor in consumer spending?

PETER TCHIR: I think on oil prices, they're gonna be very reluctant to try and deal with oil prices through monetary policy. I think they realized that doesn't work. It's not sure whether it's demand-driven, whether out of China, may be out of India, our own supply.

I think they're gonna be patient. You're starting to see domestic air travel slow. I think you're seeing the economic slowing-- economy here slowing enough that they're not gonna worry about it. I think you've got to be until January or February before they start looking at oil.

Remember, last year, it went up to around these levels. As you're headed into the winter in Ukraine and Europe, right? They're going to still deal with that war. So I think it's an issue they're keeping an eye on but only one eye at this point.

BRAD SMITH: Peter, just to follow up on that. And of course, the Fed, as they had put it yesterday at least in the commentary coming out of their meeting from Fed Chair Jay Powell, saying nominal wage growth has shown some signs of easing job vacancies, they have declined so far this year, job-to-workers gap narrowing, labor demand exceeding the supply of available workers, and then also expecting this rebalancing in the labor market to continue easing some upward pressure on inflation. How quickly should we be anticipating or expecting some of that rebalancing in the labor market to persist and thus kind of be a driver of easing the inflationary pressure?

PETER TCHIR: I think it's really gonna be persistent right now. I think some of the data was overstated. So you've seen an NFP, all these downward revisions. I did love the fact that you finally saw labor participation pick back up. And to me, you almost get this vibe out there that people are sitting around saying, hey, I can get a job anytime I want, saying hmm, maybe I can't. Maybe I better start looking for one right now.

So I think the number of, you know, these low skilled, low paying jobs are diminishing a little bit. People have moved on. So I think we're gonna see weakness. I think we're gonna see downward revisions. And I think that's gonna be very supportive for the Fed to not do anything at least.