Oil Prices Rise on Jumbo Fed Rate Cut

As widely anticipated, the Federal Reserve announced a rate cut on Wednesday at the close of its meeting in a move that represents the first time the Fed has cut interest rates since the COVID-19 pandemic, going for an extra large 50-basis-point cut. 

The Fed has lowered its key rate to ~4.8% from the two-decade high of 5.3%, while inflation has dipped to 2.5% as of August, down from 9.1% in 2022. 

More rate cuts are now likely on the books, with the Fed indicating that they may make two additional 25-basis-point rate cuts before the end of this year, in November and December, along with four cuts in 2025 and two in 2026. 

The U.S. crude oil benchmark, West Texas Intermediate (WTI), was trading down nearly a percentage point, with Brent crude not far behind just minutes before the Fed rate cut announcement on Wednesday. 

Oil prices began responding to the rate cut immediately, with downward trending prices flattening out just minutes after the rate cut announcement. 

At 2:11 p.m. ET on Wednesday, Brent crude was trading up 0.11% at $73.78, while WTI was trading down 0.10% at $71.12. The DOW also jumped 30 points on the announcement. 

Ahead of the Fed announcement this week, Wall Street had been divided over whether the rate cut would be 25 basis points or 50 basis points. The Fed has been signaling that a rate cut could potentially come in September but has been less clear as to the potential for additional rate cuts in 2024. 

On Tuesday, Massachusetts Democratic Sen. Elizabeth Warren called on the Fed to implement an urgent rate cut of 75 basis points. 

Inflation in the U.S. is now essentially tamed, and this first Fed rate cut since COVID is likely to slash the costs of borrowing from now until the presidential elections, in a boost for the Democrats. 

The Fed said it remained committed to supporting 2% inflation, along with maximum employment.

By Tom Kool for Oilprice.com

More Top Reads From Oilprice.com

• UBS Lowers Q4 Oil Forecast by $8 Per Barrel
• The Real Reason Kamala Harris Won’t Ban Fracking
• Italy Backs Energy Transition Funding for Developing Economies