March rate increase by the Fed seems a near certainty
On this week’s episode of Market Week in Review, Chief Investment Strategist Erik Ristuben is joined by Sophie Antal-Gilbert, Program Director, Advisor Insights, as they take on the topic of the potential March rate increase by the Fed. They also discuss the latest comments from Mario Draghi and the European Central Bank and this week’s surprising drop in oil prices.
Ristuben began by explaining why next week’s probability of a rate increase by the Fed is now close to one hundred percent. The last major variable considered by the Fed was this week’s U.S. jobs report, which came in with approximately 230,000 new jobs being created in the month of February. According to Ristuben, the takeaway is that the U.S. economy is on solid footing. The Fed has gone out of its way in the last couple of weeks to get the market to believe that March is a likely date for a rate hike.
Mario Draghi and Janet Yellen: Together in harmony?
Ristuben noted that this week’s comments from ECB President Mario Draghi sounded astonishingly similar to those coming from Janet Yellen and the U.S. Federal Reserve. Draghi pointed to the strong economic data coming out of the Eurozone and hinted at the fact that the ECB may be better positioned to raise rates in the future.
Ristuben also explained why the Fed believes it is important to raise rates, explaining that they want to be as far away as possible from a zero-interest-rate policy before the next recession hits. “They want as much dry powder as possible to fight the next recession,” said Ristuben. The Fed’s main lever against recession is the ability to make money cheaper. If interest rates are near zero, that lever will have less room to move.
Drop in oil prices
To close out the episode, Ristuben covered this week’s big drop in oil prices, with West Texas Intermediate (WTI) crude crossing below $49 per barrel. Ristuben pointed to the record levels of U.S. oil inventory and that, as is often the case, the low price is a simple issue of supply and demand.
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