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Oil Prices Rise As Fed Announces Small Rate Hike

Oil prices were trading up close to 2% on Wednesday afternoon after the Federal Reserve raised the key short-term interest rate by 25 basis points, emphasizing that the “U.S. banking system is sound and resilient”. 

The rapid rise in interest rates ultimately led to the collapse of Silicon Valley Bank (SVB), and a new study shows that scores of other banks are at risk of collapse due to high interest rates. 

While the Fed said it was not ignoring problems with banks, officials said the financial system nonetheless remained stable, even if we will experience a softening of the economy. 

“Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain,” Fed said.

The Fed’s Wednesday move to continue with an aggressive campaign to calm inflation comes after much speculation that it might abandon aggressive moves in light of the failures of regional banks, Silicon Valley Bank (SVB) and Signature Bank.

Some indications that the Fed would continue along the path emerged last week when the European Central Bank hiked rates by 50 basis points, despite the plunge in Credit Suisse shares that prompted a takeover move by UBS to shore up global financial markets. 

Oil prices had already gained some ground this morning after major losses earlier this week and last week. 

At 2:47 p.m. EST, Brent crude was trading up 1.79% at $76.67 per barrel, while WTI was trading up 1.68%, at $70.84 per barrel.The Federal Reserve is now forecasting another 25-basis-point hike this year, topping out at 5% to 5.25%, noting that "additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."

By Michael Kern for Oilprice.com 

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