The impact of oil prices in the US federal reserve decisions

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federal reserve

The Federal Bank began its meeting yesterday, and continues until today, to publish at a later time its statement on its monetary policy. The investors are awaiting the end of the US Federal Reserve meeting to decide on the interest rate. Also, they will follow the press conference, convened by the president of the Federal Reserve, Janet Yellen, after the meeting to try to reach for signals about the future monetary policy. Many feel that 2015 will be the good time to raise the interest rates, because the unemployment rate continues to decline, and the economy is adding jobs during the current year at the best pace since 1999. But, from some of the American reports we can see that the Fed began to show more concern about the sharp decline in oil prices, and that the limiting factor of the forthcoming decision of the US Federal Reserve regarding the interest rate increase is no longer related to not only jobs and wages, but also to oil.

Texas Oil Prices (Blue) against Unemployment rate (Green)


The US dollar witnessed a fall back against a basket of currencies in the last week trading, from its highest level at 89.56, and concluded its transactions at the levels of 88.32, which are still among the highest level since May 2010. However, the dollar is still strong so far, and the US stock market witnessed over the past week the worst performance since several years, with a dramatic decline in oil prices, which invited the economists and investors to question whether the US Federal should discuss the impact of the big drop of oil on its vision on the interest rate.

FED Fund Rate (Blue) – Dollar Index (Yellow) – US 10 Govt. Yield (Green)

And also the concerns about the health of the global economy continues after the negative impact which inflicted the shares of the energy companies, after the fall in oil prices to standard levels due to the increasing size of the supply over the demand, along with the Chinese data that showed a slowdown threatening the global growth. Usually, the oil prices affect the moves of the gold markets, as oil prices are the main driver of the general level of prices or inflation, as well as the expectations of the weak global economy, and reducing demand growth forecast in 2015, as it the crude oil prices reached the levels of $ 53.60 per barrel. With reference to those levels, they are seen for the first time since 2009, with a drop in oil prices by more than 50% since the second half of this year, knowing that the decline in oil prices supports the weak inflation environment in the world’s major economies. It also keeps the inflation expectations, and raises the expectations of the decline in the deflation, which affects adversely on the demand levels of gold as a hedge against inflation.

In the event that the oil prices continued to fall, and followed by other commodity prices, this would be an indication of a weak economy and prices deflation, which will prevent the increase of interest rates, but with the improvement in the economic data in the latter half of this year for the United States, we may not rule out a dramatic decision from the US federal as we have seen a dramatic decline of oil.


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