{"id":12717,"date":"2023-09-27T16:17:19","date_gmt":"2023-09-27T16:17:19","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12717"},"modified":"2024-01-10T17:14:31","modified_gmt":"2024-01-10T17:14:31","slug":"fed-holds-rates-steady-oil-prices-spike-managing-a-soft-landing","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/fed-holds-rates-steady-oil-prices-spike-managing-a-soft-landing\/","title":{"rendered":"Fed Holds Rates Steady, Oil Prices Spike, Managing A Soft Landing"},"content":{"rendered":"\n

In today\u2019s Steady Investor, we dive into key factors that we believe could impact the future of the market such as:<\/p>\n\n\n\n

\u2022 The Federal Reserve Holds Rates Steady
\u2022 Oil Prices Pose Another Potential Problem for the Fed
\u2022 Can the Federal Reserve Manage a \u2018Soft Economic Landing?<\/p>\n\n\n\n

The Federal Reserve Holds Rates Steady<\/strong> \u2013 On Thursday, the Federal Reserve voted to hold the benchmark fed funds rate steady at a range between 5.25% and 5.5%, which aligned with the market\u2019s expectations. The decision was not without surprises, however. Chairman Jerome Powell signaled again that rates could wind up being \u2018higher-for-longer,\u2019 and there were hints that some Fed officials believed the neutral rate \u2013 which is a rate at which inflation and employment can remain stable and mostly in balance \u2013 has arguably moved higher, too. Prior to the 2008 Global Financial Crisis, the neutral rate was largely thought to be somewhere in the 4% to 5% range, which after subtracting 2% inflation would place the real neutral rate around 2.5%. In the decade following the crisis when the Fed pushed rates down the zero bound, the economy only grew modestly while inflation was never much of a threat. In this time, estimates for the neutral rate began to fall, scaling down to 2.5% by 2019. Fed officials are clearly starting to think about the neutral rate differently now, with the U.S. economy not only withstanding a fed funds rate of 5.25% and 5.5%, but also growing firmly. This has reset market expectations for where interest rates could go from here, particularly as inflation trends lower but still has some ways to go to reach 2%.1<\/sup><\/p>\n\n\n\n

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Oil Prices Pose Another Potential Problem for the Fed<\/strong> \u2013 the third quarter has seen a virtually straight-line rise in oil prices, charting a roughly 25% increase in the price of a barrel of Brent crude.3<\/sup><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis4<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

Supply and demand forces are at work. On the supply side, Saudi Arabia and Russia\u2019s announcements to curb production until the end of the year have been a major driver of the rally, but demand from better-than-expected U.S. and global economic strength has also kept upward pressure on prices. Oil\u2019s ascent to nearly $100 a barrel poses problems for corporations, consumers, and the Federal Reserve. Higher fuel prices eat into profits for companies, while consumers\u2019 discretionary income feels a pinch from higher prices at the pump. While the Fed concerns itself mostly with \u201ccore\u201d inflation, which strips out food and energy, the knock-on effects of higher fuel prices can show up elsewhere in the economy. This means that although the Federal Reserve tries to focus on underlying inflation forces, higher energy prices could ultimately play a role in interest rate policy in the months and quarters ahead.<\/p>\n\n\n\n

Can the Federal Reserve Manage a \u2018Soft Economic Landing?\u2019 –<\/strong> History suggests the answer is no. Prior to the 1990, 2001, and 2007 recessions, many economists believed that the Federal Reserve had managed to engineer a soft landing, with interest rate increases effectively stemming inflation while not leading to an economic downturn. Instead, the economy entered a recession each time. A key issue with achieving a soft landing is that once the economy goes from being overheated to largely in balance with regards to inflation and employment, any factor that pushes demand higher or lower could knock inflation higher or employment lower, respectively. The most recent example of a successful economic soft landing came in 1995, when Fed officials had doubled the fed funds rate quickly from 3% to 6%, but realized quickly that they were too aggressive \u2013 which immediately led to three rate cuts. The central bank generally does not want to be seen as indecisive, which makes cutting rates shortly after hikes one of the least desired outcomes.5<\/sup> The Fed vice chair from 1994 to 1996, Alan Blinder, said of the soft landing that \u201cWe steered the economy very expertly, but in addition, we were lucky. Nothing bad happened.<\/em>\u201d<\/p>\n\n\n\n

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If you have $500,000 or more to invest and want to understand your retirement options, get our guide, Looking to Retire Soon?6<\/sup><\/em> Simply click on the link below to get your copy today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Fed votes to leave rates unchanged for now, oil prices could play a role in upcoming rate decisions, history shows a soft landing is unlikely.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,73],"tags":[],"class_list":["post-12717","post","type-post","status-publish","format-standard","hentry","category-private-client-group","category-steady-investors-week"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12717"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12717\/revisions"}],"predecessor-version":[{"id":12720,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12717\/revisions\/12720"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12717"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}