Market Extra: Oil-production cuts threw ‘another log on the fire’ in Fed’s inflation fight after ‘mini banking crisis,’ but fixed-income investors ‘getting paid to be patient,’ says BlackRock’s Rick Rieder

by | Apr 4, 2023 | Stock Market

Soon after March’s sudden bank failures startled markets, April kicked off with surprise oil-production cuts that left investors worried about potential ripple effects on still high inflation.  Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the firm’s global allocation investment team, said in a phone interview that when he saw news of the unexpected oil-production cuts by OPEC+, his first thought was, “here’s another log on the fire,” when it’s already “so hard” to bring down inflation.

Crude prices

in the U.S. jumped Monday after OPEC+, a group of oil-producing countries including Saudi Arabia, surprised markets by announcing on Sunday plans to reduce production by more than one million barrels a day beginning in May until the end of 2023.  Read: 6 things investors need to know about the surprise OPEC+ production cuts Rieder worried that’s “inflationary” in the near term, with the potential to lead to higher prices for consumers at the gas pump and a pullback in their spending elsewhere in the economy. In his view, the announcement also seemed “counterintuitive” considering China’s been reopening its economy, which should translate into growth in energy demand. The Federal Reserve has been raising interest rates in an effort to bring high inflation under control, but after last month’s sudden collapse of Silicon Valley Bank and Signature Bank, the bond market began adjusting for potential rate cuts even as the cost of living remains elevated.  Treasury yields dropped as investors feared the Fed’s aggressive monetary policy was creating cracks in the financial system, and that the banking stress increased the probability of recession.  Read: Two-year Treasury yields see biggest monthly drop since 2008 after bank turmoil Rieder expects “sticky inflation,” potentially exacerbated by higher oil prices, means the Fed may continue to “talk tough on inflation.” He thinks the Fed may pause its rate hikes “at a restrictive level …

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