Brent declines as US Fed hikes interest rates

The US Federal Open Market Committee (FOMC) has increased its key interest rate by 0.25 percentage points to the range of 3.75-4%.

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The interest rate hike marks the US central bank's first rate hike since 2023 and reverses the previous year's monetary easing cycle as sticky inflation persists.

The US Fed's policy shift comes amid the high-stakes standoff between Washington and Tehran, compounding the gridlock as commercial traffic through the critical Strait of Hormuz remains severely paralysed.

“Uncertainty remains elevated owing, in part, to geopolitical developments,” the US Fed said in a statement.

Brent crude’s price has retreated following the Fed’s announcement, pulled lower by a stronger US dollar.

Higher interest rates in the US can dampen demand growth and make dollar-denominated commodities like oil more expensive for holders of other currencies.

“The Fed delivered what was expected,” remarked SPI Asset Management managing partner Stephen Innes.

The recent escalation in the Middle East has spiked Brent crude’s price. This has complicated the US Fed’s inflation outlook as it remains committed to achieving a 2% inflation rate over the longer run.

“Not hiking would probably have created more noise than hiking, especially after the recent move in oil,” Innes said.

By Aparupa Mazumder

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