The recent spike in crude oil prices will likely result in a fresh rate hike by the Fed this week, according to data from CME Group, cited by The National today.
As much as 90% of respondents from trading circles expect a rate hike of 25 basis points, after last week, the European Central Bank hiked interest rates by the same amount. “The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” the ECB said in its decision.
“People are finally waking up to the risk that the Iran war will be prolonged, and so relief is no longer in sight for energy prices,” MPA Macro analyst Derek Tang said, as quoted by the publication.
Oil is trading above $100, with last week’s gain alone at 8% and still moving higher today. Earlier in the day, Brent crude briefly topped $108 per barrel in Asian trading.
“It’s just a broader-picture question of, are you comfortable with the pace at which that inflation is coming down, or do you think a rate hike might better balance the risks around the economy,” the chief U.S. economist at Oxford Economics told The National, adding that the situation could be described as the Fed sitting on a “knife edge”.
ING analysts also expect the Fed to hike rates as the August inflation reading remains well above target, at 3.4%, with core consumer prices up by 0.29% from July. This is double the rate needed to bring inflation down to the Fed target of 2%, the ING team wrote in a note on Friday.
Higher oil prices have prompted a surge in U.S. fuel prices, with diesel hitting an all-time high of $6 per gallon last week. The latest data from AAA shows the national average for gasoline at $4.3120 per gallon, with diesel moving higher still, averaging $6.2040 per gallon as of Sunday.
By Irina Slav for Oilprice.com
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