Prices were weighed down more by fears of recession than by US President Joe Biden’s plan to temporarily suspend federal fuel taxes to reduce inflationary pressures.
(Boursier.com) — Oil prices lost ground on Wednesday, mainly weighed down by fears of a recession, which Federal Reserve Chairman Jerome Powell admitted was “possible” in the United States, due to the tightening. monetary policy underway to curb inflation.
Wednesday evening, the barrel of American light crude WTI fell 3% to $106.19 on the Nymex (August futures contract), while the Brent of the North Sea August expiry fell 2.5% to $111.74 on the ICE.
Prices were weighed down more by fears of recession than by the US President Joe Biden’s plan to temporarily suspend federal fuel taxes in order to reduce the inflationary pressures from which American consumers are suffering.
The price of a gallon of gasoline has reached record highs in the United States
The White House asks Congress to pass the sremoval for three months, until the end of September, of a federal tax of 18 cents per gallon (3.78 liters) and calls on states, which also tax gasoline at the pump, to do the same, in order “to directly relieve American consumers who are suffering from Putin’s price hike”, senior officials said of the Biden administration.
Inflated by the post-health crisis recovery, then by the war in Ukraine, the average price of a gallon of gasoline recently reached a record high of $5 in the United States, compared to around $3 a year ago, and this outbreak is reflected in the national economy, causing the decline in the popularity rating of the American president. This has less than 40% of favorable opinions, a few months before the mid-term legislative elections next November.
An ineffective measure to balance the oil market
US Secretary of the Treasury Janet Yellen pointed out on Wednesday that the impacts of energy prices “actually amount to half of inflation” and expressed support for the proposed Gasoline Tax Holiday.
Such a measure, on the other hand, would not have a negative impact on demand, point out analysts, for whom only a reduction in demand could permanently lower pricesin view of a supply that is still constrained at the global level.
Some believe that a suspension of taxes could even be counterproductive, by stimulating demand for fuels (and therefore oil) during the summer holiday season, and thus contributing to the continued rise in prices…
A recession is “possible”, admits Jerome Powell
More than Joe Biden’s project on taxes, investors closely followed the hearing this Wednesday of Jerome Powell, the chairman of the Fed before the US Senate. He confirmed the priority given by the Fed to the fight against inflation, despite the risk, assumed, to cause a recession in the United States, a scenario which would certainly lead to a fall in oil prices.
The Fed thus remains “strongly committed” to bringing inflation down, Powell said, adding that the pace of further rate hikes will depend on indicators and how the economic outlook evolves. “We will make our decisions meeting after meeting,” he explained.
Pressed by questions from senators, the Fed boss admitted that it is “possible” that the rate hike could lead to a recession “It’s not the desired effect at all, but it’s definitely a possibility,” he added, admitting that a soft landing was going to be “very difficult”.
However, he assured that there were still “ways to bring inflation down to 2% without causing such problematic consequences”, and expressed confidence in the resistance of the American economy, fueling hopes “controlled landing”.