Will the Federal Reserve Still Cut Rates Three Times This Year?

Oil Prices Rise in the Wake of OPEC Meeting

5 hr 31 min ago

Oil prices rose to their highest level this year on Wednesday, and odds are they’ll climb even higher this summer, according to Bank of America (BofA) Securities analysts.

Brent crude futures contracts traded just cents shy of $90 a barrel on Wednesday morning. The price of Brent’s American counterpart, West Texas Intermediate, crossed $86 for the first time since October.

Prices have been buoyed this year by production cuts totaling 2.2 million barrels per day by the Organization of the Petroleum Exporting Countries (OPEC) and its non-OPEC allies. The group, dubbed OPEC+, decided on Wednesday to maintain those cuts.

On top of that, geopolitical tensions have both curbed supply and increased demand. Attacks on merchant ships in the Red Sea have disrupted supply and, by lengthening global trade routes, boosted oil demand by an estimated 150,000 barrels per day.

And Ukrainian attacks on Russia’s refining infrastructure are threatening to reduce the supply of fuel.

At the same time, robust U.S. economic data points to stronger-than-expected demand throughout the summer.

As the Federal Reserve continues to monitor economic indicators to decide whether to cut interest rates later this year, the BofA analysts predicted that “lower interest rates and easier financial conditions will support rising commodity prices into summer.”

Oil prices are important because they can drive up prices for drivers at the pump. That can have an outsized effect on the economy as gas prices often influence consumer sentiment.

Read more about oil prices here.

-Collin Laidley

Service Industries Growth Slows, Paint Mixed Picture

9 hr 32 min ago

The services industry continued its expansion in February, though its growth slowed some from previous months, a series of industry surveys showed.

The Institute of Supply Management (ISM) service sector Purchasing Managers Index (PMI) delivered a reading of 51.4% for March, where a reading above 50% indicates a growing sector The index dipped slightly from its February reading while economists expected it to come in at the same level. This is the 15th straight month of sector growth.

Also released today, the services sector PMI from S&P Global similarly indicated growth, but its reading of 51.7 was the lowest in three months, despite 14 straight positive months.

“The decrease in the rate of growth in March and the decline in the composite index is a result of slower new orders growth, faster supplier deliveries and a contraction in employment,” said Anthony Nieves, chair of the ISM services survey committee.

The report showed that economic momentum in the service sector, despite slowing some this month, was likely to continue “for some time,” potentially complicating the Federal Reserve’s plans to cut interest rates, wrote BMO Capital Markets Senior Economist Priscilla Thiagamoorthy.

“Fed officials have signaled they’re in no rush to cut rates amid an economy that’s still expanding,” Thiagamoorthy wrote.

The ISM report offered some optimism on inflation, as the price index of 53.4% was down more than five percentage points from the previous month, its lowest reading since March 2020.

“A challenge for the Federal Reserve has been the way robust spending on services has slowed progress in bringing down services inflation. On that basis, the drop in the prices paid component is encouraging, at least at face value,” wrote Wells Fargo economists Tim Quinlan and Shannon Seery Grein.

Along with similar manufacturing data released earlier this week, the reports point to U.S. gross domestic product (GDP) growing by 2% annualized in the first quarter, said Chris Williamson, chief business economist at S&P.

-Terry Lane

Private-Sector Payrolls, Wages Move Higher in February

11 hr 55 min ago

Employers kept hiring in March, as private sector payrolls made their biggest jump since July to surge past expectations.

The ADP National Employment Report showed private employers added 184,000 positions in March, well above the 155,000 jobs that economists surveyed by the Wall Street Journal and Dow Jones Newswire expected on average.

Leisure and hospitality, construction, and trade services saw the strongest gains in employment. The report also showed a significant jump in pay for employees who move to new jobs, gaining a 10% bump in pay, while the 5.1% annual pay increase that “job-stayers” secured was flat compared with the prior month.

“March was surprising not just for the pay gains, but the sectors that recorded them. The three biggest increases for job-changers were in construction, financial services, and manufacturing,” said Nela Richardson, ADP chief economist.

Pay increases are of particular interest to the Federal Reserve as officials fear higher pay could fuel inflation.

The data comes ahead of Friday’s U.S. payrolls report, where economists will get the latest data on jobs, unemployment, wage gains and other key metrics. And while the unemployment rate ticked up to 3.9% in February, employers also reported adding more jobs in the month.

-Terry Lane

Federal Reserve Officials Seemingly Split on Next Moves

12 hr 10 min ago

Federal Reserve decision-makers seem to be diverging in their opinions on what the next steps should be in the fight against inflation.

Atlanta Federal Reserve president Raphael Bostic told CNBC Wednesday he thinks only one rate cut will be appropriate this year, and it will likely come in the fourth quarter. He joins Fed Governor Christopher Waller in doubting the prevailing estimation that the board will cut interest rates three times this year. Waller said last week that it would be appropriate to reduce the number of rate cuts or delay them.

Other Federal Reserve officials are holding the line, seemingly not ready to give up on three rate cuts just yet. Yesterday San Francisco Fed President Mary Daly said inflation remains on track to cut interest rates later this year, but that it isn’t promised.

Cleveland Fed President Loretta Mester also spoke yesterday, echoing much of the comments we’ve heard from Fed officials this year, saying more data is needed to determine the timing of rate cuts.

For their part, investors are becoming less confident that a rate cut will come in June, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. They’re pricing in a 58% chance of a cut at the Fed’s June meeting, down from a 70% chance a week ago.

Homebuyers Still Not Lured By Lower Mortgage Rates

13 hr 48 min ago

Mortgage rates continue to drop, but the lower rates still aren’t working to draw in more homebuyers, according to data from the Mortgage Brokers Association.

Applications for mortgages dropped by 0.6% for the week ending March 29, moving lower for the third straight week, even though mortgage rates were slightly more favorable. The MBA report showed the average 30-year fixed-rate mortgage fell to 6.91%, while the 15-year fixed-rate mortgage dropped to 6.35%, its lowest level in two months.

“Elevated mortgage rates continued to weigh down on home buying,” said Joel Han, MBA vice president and deputy chief economist.

The weaker demand for mortgages comes after recently released data showed that pending home sales in February moved higher, indicating that a frozen housing market may be showing signs of thawing.

-Terry Lane

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