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By late in the New York trading session crude oil futures were down 0.90% at $92.94 per barrel. The price dropped after President of the New York Federal Reserve William Dudley made comments in a speech today that he is ‘more hopeful’ about the state of the US economy.
The oil price had climbed earlier in the session, following China’s promise to expand economic freedoms, but slipped back on speculation that Mr Dudley’s comments might augur tapering by the Fed sooner than thought. Mr Dudley has been a strong supporter of the QE programme in the past, last speaking on the economy back in September, at which time he said the labour market was still in need of help, but appears to have changed his outlook quite substantially.
‘I have to admit that I am getting more hopeful,' he said today. 'Not only do we have some better data in hand, but also the fiscal drag, which has been holding the economy back, is likely to abate considerably over the next few years at the same time that the fundamental underpinnings of the economy are improving.’ Mr Dudley is a permanent voting member of the FOMC.
Also speaking today was Charles Plosser, the President of the Philly Fed, who said at a conference today that the Fed should being to phase out QE. ‘I believe that labour markets have substantially improved from a year ago and that we should begin to wind down these asset purchases,’ he said.
As I’ve said before, it is important when considering remarks from Fed officials, to put them into context. Mr Plosser is an inflation hawk and was calling for an end to QE back in the summer, so his comments reveal nothing particularly new. Although Mr Dudley did reveal a change in his stance, the time frames he mentioned don't make me think we should substantially re-evaluate current tapering expectations. More than anything, the drop in crude illustrates how sensitive the oil market remains to any comments regarding tapering.