As the year came to a close, the headline story (for at least the second half of the year) was the dramatic fall in oil prices. Both Brent and West Texas Intermediate oil prices have declined by around 50% since the start of the financial year.
The implication of lower oil prices has been that inflation and inflation expectations have softened globally. This has provided greater flexibility for central banks around the world with their ultra-accommodative policies. In particularly, the US Federal Reserve could keep rates “lower for longer” and may have their first interest rate increase even with inflation below their 2% target as their economic recovery progresses. In their statement, the US Federal Reserve signalled to the market that it was getting closer to rates “lift off” by dropping the use of “considerable time” and replacing it with “can be patient” on raising rates.
