By: Russ Kamp, Managing Director, Ryan ALM, Inc.

You may recall that on July 14, 2023, I penned the post “It Ain’t Over Until it is Over” in which I covered the subject of rising oil prices at that time stating, one of the key factors contributing to the Fed’s success in driving down the CPI has been the significant fall in the price of oil. As you may recall, the price of a barrel of WTI crude oil peaked on June 6, 2022 at $120.67. It currently resides (10:03 am EST) at $76.52 which is a fall of -36.6%. Since petrochemicals derived from oil and natural gas are used in the production of >6,000 everyday products, this significant decline in the price of oil obviously goes a long way to mitigating inflation. But, one must ask, has the price of oil peaked and will the slide in price continue or will OPEC and other factors potentially disrupt this favorable trend?

I went on to state, there recently has been an uptick in the price of WTI, which stood at $70.64 on June 30, 2023. At $76.52 today (as of July 14th), WTI is up 8.3% MTD. I mention this trend because bond investors seem to think that the Fed has accomplished everything that it set out to do when it first increased the Fed Funds Rate on March 17, 2022. The subsequent 10 rate increases have meaningfully addressed inflation, but as we witnessed in the 1970s, declaring victory prematurely can bring about a swift reversal of fortune.

Well, WTI currently sits at a price of $88.66, a 25.5% increase since June 30th, and 15.9% above the price on July 14, 2023 when I wrote of my concerns about the trend for oil. Since that post, both Russia and Saudi Arabia have stated that production cuts would be sustained until at least year-end. Ouch! There are three FOMC meetings remaining in 2023. It still amazes me that the collective investing community still believes that the Fed has accomplished its objective and that 2024 will be the year of Fed Fund Rate cuts. Given that GDP growth is currently forecast to be 5.6% for Q3’23 as calculated by the Atlanta Fed’s GDPNow model, unemployment remains historically low, and housing and rental costs remain stubbornly high, I just don’t see where there is room for a rate cut on the horizon.

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