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Consumers in the United States are not only facing higher gasoline prices (if oil’s rebound stays), but also higher interest rates. The truth is, interest rates have been abnormally low for many years. Now, this is likely to change.
The Federal Reserve Chairman, Janet Yellen, gave a hint that the rates may be increased this summer, CNN Money reports.
“The economy is continuing to improve. Growth looks to be picking up from the various data that we monitor,” Yellen stated.
According to many analysts, a major reason why the Fed would hold on with interest rate hike this summer is the possibility of a Brexit. On June 23, the United Kingdom citizens will vote on whether their country should stay in or leave the European Union. According to the latest polls, the voters are split.
Brexit could lead to international turmoil, so the Fed may wait until the results are announced.
When it comes to the United States, in the first quarter the economy grew at 0.8%, while wage growth picked up a bit, and new home sales increased significantly.
Whether there will be a small hike in rates this summer isn’t certain yet, but the Fed is becoming more hawkish, and it is quite likely there will be a couple of small rate hikes this year.
Some investors and borrowers may not like it, but keeping rates too low is hurting those living of fixed income as well as could lead to higher inflation down the line.
The price of oil has recovered somehow from its recent lows of under $30 a barrel. Now, crude is trading at around $50. Still, it’s way down from its high of nearly $150 a few years ago. And the U.S. and Canadian based shale oil producers are suffering since their production costs are high.
Many of these companies have already cut down on production and laid off staff. Yet, there’s going to be more struggle as MarketWatch reports. Over long-term, oil is bound to rise as it is a scarce commodity, but in the shorter term, it may fall again. One of the reasons for its recent ascent is due to Canadian wildfires and Nigerian unrest, which are not necessarily what affects demand and supply fundamentals for long.
MarketWatch doesn’t expect investors to make substantial gains on oil as now it is likely to trade in a narrow range. On the other hand, traders who bet on very short-term swings can make profits as most of their bets are leveraged. This way, a 1% gain in price may translate into as much as 10%, or more, in gains.
While many oil trades are made with the futures contracts, or leveraged spot transactions, some traders choose leveraged oil Exchange-Traded Funds (ETFs) to make both long and short bets on oil.
While MarketWatch thinks the fun is over in this market for some time, no one can predict with certainty where the oil price is heading. For most of us, the consumers, the lower it is, the better.