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Fed rate path debated as oil and inflation trends shift expectations
Oil price declines and easing inflation could increase pressure for larger-than-usual rate cuts, which some scenarios link to mortgages falling below 5.5%.
MarketBeat Ratings argues that the Fed’s latest rate hike can be seen as more than just holding inflation pressure on the economy, pointing instead to the possibility that policymakers are positioning for a larger rate cut later. The outlet notes that raising rates while facing economic headwinds could push the economy toward stagnation, potentially giving the Fed room to cut, potentially by larger-than-normal increments, over the next few quarters.
The piece attributes part of the inflation backdrop to oil, saying the Fed may be attentive to how quickly headline inflation could fall if the market reduces the so-called Iran War oil premium. It cites factors that could eventually loosen supply, including demand erosion, Strait of Hormuz workarounds, increased non-OPEC production, and the eventual resolution of the conflict, which could lead to lower oil prices that the market may price ahead of time.
MarketBeat Ratings also highlights oil market structure and technical price levels, saying WTI is trading in backwardation and that resistance at $105 was confirmed by September activity. It adds that the immediate reaction to the September rate hike was limited because it was largely expected, and suggests the Fed would need additional 50 to 75 basis points of hikes to meaningfully impair activity, which is seen as unlikely given oil-related risks.
On timing and market impact, the outlet says the September quarter-point hike may have provided “ammunition” for a future environment in which inflation falls, enabling a larger rate cut when appropriate. It frames housing as a key potential beneficiary, noting that constrained supply, high prices, and high rates have held the market back, and positing that a rapid drop in rates could push mortgage rates below 5.5%.
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