Federal Reserve Needs to Wait for Oil Prices to Stabilize Before Hiking Rates

The downward spiral in oil prices could derail the Federal Reserve’s plan to hike interest rates four times this year. ‘I think [the Fed] will have to wait until perhaps until we see some steadying in oil prices,’ said Brenda Kelly, head analyst at London Capital Group. ‘We do seem to be finding support around $32 a barrel but oil prices will dictate inflation expectations,’ adding that inflation and the strength of the U.S. dollar are important factors in determining when the next Fed hike occurs. Though Kelly doesn’t see the Fed raising rates before the third quarter of 2016. The markets are pricing in a 45 percent chance of a rate hike in March, a probability that has inched lower since Friday’s blowout December jobs report amid volatility in China’s stock market. The Fed pushed short-term interest rates higher by 25 basis points for the first time in nearly a decade last month. Fed officials see rates reaching 1.375 percent by the close of 2016, implying some four rate hikes in 2016. As the prices for brent crude and West Texas Intermediate fall below $33 a barrel, representing 12-year lows, the analysts at Morgan Stanley said oil in the $20-$25 range is a possibility amid the strengthening dollar. TheStreet’s Scott Gamm reports from Wall Street.