Fed Likely to Skip Rate Hike If Oil Stays Near 80

Jeremy Siegel, senior economist at WisdomTree, stated the Federal Reserve will likely not raise rates in September if oil prices remain around 80 dollars per barrel. This statement comes as the S&P 500 surpassed 7800 for the first time, fueled by strong earnings and easing inflation data. Siegel noted that recent inflation reports have decreased the likelihood of a rate hike. The Consumer Price Index (CPI) report was released on Wednesday, followed by the Producer Price Index (PPI) report on Thursday. Goldman Sachs has revised its forecast for the Personal Consumption Expenditures (PCE) price index, now expecting a 0.2% increase for the month. Siegel attributed part of this decline to rising equity values, which influence a component of the PCE index. Following the CPI report, traders shifted sentiment towards a hold on rates. Siegel also mentioned a recent liquidity scare that revealed limited excess risk in the market, with stocks rebounding to new highs. He highlighted that artificial intelligence spending is boosting earnings across various sectors, not just among major AI infrastructure providers. Additionally, there is a rotation from expensive growth stocks to value stocks trading at around 15 times earnings, many of which have yet to realize AI-driven efficiencies. This trend aligns with concerns from market analysts about a potential uneven impact on smaller AI stocks. Traders will monitor whether the odds of a September rate hike continue to decline as retail sales data and the complete PCE report are released later this month.