Brent Crude Tops $104 as Fed Hike Looms
Brent crude oil trades above $104 per barrel. The Federal Reserve may raise rates by 75 basis points next week.
Brent crude oil traded above $104 per barrel on Friday. This marked a near double-digit percentage increase for the week. Shipping traffic in the Strait of Hormuz slowed due to regional conflict. Energy costs now pressure global supply chains and consumer prices.
US equity markets reacted to the price surge. The Dow Jones Industrial Average lost 848 points for the week. The S&P 500 dropped 62 points, and the Nasdaq fell 173 points. Investors priced in the risk of tighter monetary policy. The Federal Reserve is scheduled to meet next week.
Inflation metrics show energy pressure
The consumer price index rose 0.4% in August. This matched economist forecasts reported by GN markets/inflation (en-US). Annualized inflation increased by 3.4%. The producer price index also rose 0.4% for the month. Year-over-year, PPI increased by 5.4%.
Energy prices drove these gains. They rose 4.2% last month, the largest monthly gain since May. Airline fares increased 2.7% from July. Restaurant spending grew 3.4% compared to the same period last year. Diesel fuel costs impact food prices with a lag of up to nine months.
Monetary policy shifts toward hikes
Analysts expect the Federal Reserve to raise interest rates. Some experts predict a 75 basis point increase. The European Central Bank already raised its own rates. This was its second increase this year. Inflation remains the primary concern for central banks.
Consumer confidence is declining. The University of Michigan sentiment index dropped for September. The decline was sharpest among low- and middle-income households. Small business sentiment also dipped slightly according to the NFIB. Inflation remains the top reported problem for owners.
Supply chain disruptions impact sales
62% of small business owners reported supply chain disruptions. Actual sales worsened in August. NFIB Chief Economist Bill Dunkelberg noted elevated uncertainty. Owners face weakened sales and inflation pressures. Expectations for the overall economy have dimmed.
