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Oil Prices Fall On Biggest Fed Rate Hike Since 1994

In its largest hike since 1994, the Federal Reserve raised rates by three-quarters of a percentage point, or 75 basis points, with oil prices responding by drawing down just under 1%. 

Wall Street had largely anticipated a 75-basis point hike, and oil prices were down 1% on Wednesday, ahead of the Fed meeting, regaining some ground by the time of the rate hike announcement. 

At 2:13 p.m. EST, just minutes after the Fed release, Brent was trading down 0.62% on the day, at $120.42. WTI was trading at $118.10, down 0.70%.

The Fed also signaled that more rate hikes were to come, with another potential three-quarters of a percentage point hike in July. A half percentage point hike is possible for September

In a Wednesday press release the Federal Open Market Committee (FOMC), said “overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures”.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks,” the FOMC statement read. 

The rate hike follows a half-percentage point hike in May. 

Oil prices also settled lower on Tuesday in anticipation of an interest rate hike of 75 basis points. Earlier expectations were for a 50-basis-point hike. The shift in sentiment came after a strong consumer price index report for May raised expectations of a much higher rate hike. 

By Tom Kool for Oilprice.com

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Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More

Comments

  • Dave Baldwin - 16th Jun 2022 at 12:07pm:
    Media friendly interest rates going up, real interest rates (base rate minus inflation) still going down.. potentially if debt free, never been a better/ cheaper time to borrow money and pay back in inflated Dollars.. this is apparently monetary tightening for magical thinking..
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