Oil Prices Fall After Fed Raises Rates
Oil prices continued to slide on Wednesday afternoon after the Federal Reserve announced it would hike rates by 75 basis points.
Fed Chair Jerome Powell acknowledged last month that rate hikes would cause pain—pain intended to bring about demand destruction necessary for bringing down inflation.
The rate hike was expected heading into the meeting, with most analysts foreseeing a rate hike of 75 basis points, while a few analysts were anticipating a 100 basis point hike. Oil prices were already trending down prior to the meeting. The rate hike sank them further.
An hour before the Fed announcement, WTI crude was trading at $83.31 per barrel—down $0.63 (-0.75%) on the day. Brent was trading at $90.03 per barrel, or a loss of $0.59 on the day.
While gasoline prices have come down 22 cents per gallon over the last month—a relief to drivers--core consumer prices rose by more than anticipated in August. The Core Consumer Price Index tracks the changes in prices for goods and services, excluding energy and food.
While gasoline prices have cooled over the last couple of months, it is still nearly $0.50 per gallon more expensive for American drivers than it was this time last year.
Higher rates typically translate into a stronger dollar, which in turn tamps down the price of crude oil, with oil more expensive for buyers holding foreign currencies. The dollar reached a 20 year high earlier on Wednesday.
The possibility of a recession—which could trigger demand destructure--caused by higher rates has also weighed on crude prices.
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