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Apr 03 - 12:55 PM

MUFG: Rising Oil Prices Fuel Doubts Over Fed Rate Cuts

By eFXdata  —  Apr 03 - 11:00 AM

Synopsis:

MUFG observes the rebound in oil prices as a complicating factor for the Federal Reserve's inflation outlook, potentially hindering the anticipated pace of rate cuts for the year. This development casts doubt on the scale of rate cuts major central banks might undertake. The US rate market has adjusted its expectations, no longer fully pricing in 75 basis points of Fed cuts by year-end, despite dovish remarks from Fed officials reinforcing plans for three rate cuts within the year.

Key Points:

  • Oil Price Rebound: The recent increase in oil prices may reverse last year’s disinflationary pressures, adding complexity to the inflation outlook and impacting central banks' rate cut plans.

  • Fed Officials' Comments: San Francisco Fed President Daly views three rate cuts as a "very reasonable baseline," noting no immediate need for rate adjustments due to ongoing strong growth. Cleveland Fed President Mester also leans towards three rate cuts but emphasizes the need for more evidence of declining inflation before initiating cuts. Both Daly and Mester are voting members of the FOMC.

Conclusion:

The recent uptick in oil prices introduces additional uncertainty into the Fed's rate cut trajectory, despite ongoing dovish signals from Fed officials advocating for three rate cuts this year. Investors and market observers will closely monitor further economic indicators and central bank communications to gauge the likelihood and timing of these adjustments.

Source:
MUFG Research/Market Commentary

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