New York – Washington Letter for Week beginning May 23
What happened last week?
The most important development last week was the U.S. Federal Reserve’s (Fed) minutes from April meeting revealing that the bank would increase interest rates in June if U.S. macroeconomic data is supportive.
With the release of the minutes, the U.S. stock market saw losses, while oil prices declined due to gains in the American dollar.
After diving below $30 per barrel mark in late January, oil prices climbed as high as $49 a barrel last week, due to supply cuts in Nigeria, Venezuela, Canada, and the falling output in the U.S.
In addition, global investment bank Goldman Sachs’ upward revision in its price forecast this year helped push crude prices higher in the global market.
However, if the possibility of the Fed’s rate hike gains momentum this summer, sudden drops on Wall Street and in oil prices are highly expected.
Markets and investors will be paying close attention to any statements from the Fed officials and supply disruptions in the oil industry as the bank’s June meeting looms.
What to expect from this week?
A number of members of the Federal Market Open Committee (FOMC) will make statements this week. Their speeches will be watched closely by investors and markets since they may hint of the possibility of a rate hike this summer.
Meanwhile, the Fed’s reaction to the possibility of the U.K. leaving the EU (Brexit) is followed with anticipation.
St. Louis Fed President James Bullard, a voting member on FOMC, said Monday that the possibility of Brexit is weaker in recent weeks, and the Fed’s interest rate decision will not be dependent on it.
He also added that interest rates being "too low for too long" may cause financial instability.
However, the head of the San Francisco Fed John Williams, said that the Fed could hold off on a rate hike due to the possibility of Brexit.
He also had a bullish projection by stating that interest rates may be raised three to four times this year, and an additional five times in 2017.
The divisions among the FOMC members create a foggy environment before the Brexit referendum on June 23, and the Fed’s meeting a week after.
Meanwhile, it is highly likely that U.S. investors will cave in and sell off stocks with the risks of a Brexit and the Fed’s rate hike, causing more losses in the stock market and oil prices.