US Fed issues 2nd rate hike in 8 years, oil plunges

According to media reports, the US Federal Reserve (Fed) raised its key interest rates by 25 basis points at their meeting on December 14, for the second time since December 2008. The Fed’s new target interest rate range stands at 0.50%-0.75% from the previous 0.25%-0.50%.

The Fed reported that the central bank was in an environment of uncertainty following the new presidential election as the future policies to be followed and their potential effects on the country’s economy are not yet clear. The Fed also hinted that there might come more rate hikes in 2017 if the cloud of uncertainty persists.

Following the decision, the US dollar rose against a basket of currencies and oil prices declined by 3% on Wednesday evening. Brent crude closed yesterday’s session at $53.90 after a low of $53.80 while NYMEX settled at $51.04 after hitting $50.92. However, crude prices started to stabilize again on Thursday morning.

A continuously strengthening dollar can negatively affect crude oil demand as it will mean that the purchase of crude in dollars will be much more expensive for other countries.