DTN Oil

WASHINGTON, D.C. (DTN) -- Nearby-delivery oil futures on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange eased for a second session on Thursday while stocks on Wall Street soared to all-time highs and the U.S. dollar recouped Wednesday's losses sparked by the Federal Open Market Committee's (FOMC) ongoing expectation for three rate cuts of 0.25% each later this year.

Investors in broader markets had already trimmed the odds for the central bank to reduce the number of interest rate cuts to two times this year ahead of this week's FOMC meeting, according to the CME FedWatch Tool. By Thursday afternoon, bets for a June cut to the federal funds rate are back on the table with a more than 70% probability followed by expectations for two more cuts in September and November. The repricing was triggered by dovish comments from Federal Reserve Chairman Jerome Powell who suggested the higher inflation seen at the start of the year hasn't fundamentally changed the central bank's outlook on the economy and monetary policy.

"We still expect inflation to cool in coming months, though the progress could be more gradual and bumpier than in 2023," said Powell at a news conference Wednesday following the rate decision.

What's notable is the FOMC in its Summary of Economic Projections upgraded its forecast for U.S. gross domestic product to 2.1% this year from December's 1.4% estimate, with the unemployment rate averaging 4%. Meanwhile, the core personal consumption expenditures index, which excludes volatile food and energy prices, is now projected to climb to 2.6%. That's higher than the 2.4% inflation reading central bank officials expected in December.

"We may look back at this week as the week in which the central bank stepped away from a very strict inflation target to much more of a concept of an inflation," said Mohamed El-Erian, Allianz Chief Economic Advisor, during a CNBC "Squawk Box" interview. "We are living in a world where supply side is a problem, and we need to tolerate a slightly higher inflation if we don't want to sacrifice the economy."

Although the U.S. economy continues to outperform expectations, there are some pockets flashing signs of a slowdown, including manufacturing and loan delinquencies for lower-income consumers. Credit card delinquency rates at large banks are at the highest levels since 2012 and at smaller banks are at all-time highs, according to a report by the Federal Reserve Bank of Philadelphia. U.S. manufacturing economy remained in a shallow recession for the 16th straight month in February, with sub-indexes of new orders and employment falling into deeper contraction, showed data from the Institute of Supply Management.

Against this backdrop, markets welcomed the Fed's forward guidance on rate cuts, with Dow Jones Industrial Average jumping 285 points on Thursday to an all-time high 39,830 before trimming the advance with a 39,781 close, and the S&P 500 and NASDAQ Composite advanced 0.32% and 0.2%, respectively. U.S. dollar index spiked 0.6% against a basket of foreign currencies to settle at 103.666, pressuring the front-month West Texas Intermediate contract.

NYMEX May West Texas Intermediate (WTI) futures slipped $0.20 to $81.07 barrels (bbl) and ICE May Brent futures softened $0.17 for a $85.78 bbl settlement. NYMEX April ULSD futures declined $0.0269 to $2.6688 gallon, while April RBOB futures eased $0.0061 to $2.7271 gallon.

In addition to the stronger dollar, which has an inverse relationship with the U.S. crude benchmark, oil futures came under technical pressure after rallying earlier in the week.

Liubov Georges can be reached at liubov.georges@dtn.com.