US Fed signals no quick rate relief, oil tumbles

23 Feb 2024 , 10:30 AM

After a U.S. Fed official stated that interest rate reductions should be postponed for at least two more months, oil prices dropped on Friday.

U.S. West Texas Intermediate crude futures were down 25 cents, or 0.3%, at $78.36, while Brent crude futures were down 25 cents, or 0.3%, at $83.42 a barrel.

Fed Governor Christopher Waller stated on Thursday that interest rate cuts by the US Federal Reserve should be postponed for at least a few more months in order to assess whether the recent spike in inflation is a sign of a pause in the move towards price stability or merely a bump in the road.

Longer-term higher interest rates reduce economic growth and hence reduce demand for oil.

Since last July, the U.S. central bank has maintained a policy rate that ranges from 5.25% to 5.5%, and the minutes of its policy meeting last month reveal that the majority of central bankers were concerned about easing policy too soon.

Waller also refuted the notion that if the Fed holds off on cutting rates for too long, it runs the risk of causing the economy to enter a recession, stating that the Fed can ‘wait a little longer’.

Following Waller’s remarks, oil benchmarks lost part of their Thursday gains.

As fighting in the Red Sea continued and the Houthis, who are allied with Iran, increased their attacks close to Yemen in an effort to support the Palestinians fighting in Gaza, oil futures settled higher on Thursday.

According to Israeli media and a source briefed on the situation, Israel Prime Minister Benjamin Netanyahu’s war cabinet has approved sending negotiators to Gaza for truce talks taking place in Paris as pressure builds around the Middle East.

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