The recent oil price decline is part of a general slowdown in global economic growth, said Gary Schlossberg, global strategist for Wells Fargo Investment Institute.
In an interview with CNBC TV18, Schlossberg said that the only way to alleviate the tight supply situation currently prevalent in the market is through lower economic growth and reduction in demand for oil.
“The big challenge at the moment is the high level of inflation remaining there for some time, forcing the US Federal Reserve and foreign central banks to move aggressively in the early stages of this tightening cycle,” he added.
The Federal Reserve had approved on last Wednesday the largest interest rate hike in more than a quarter of a century in an effort to contain a surge in inflation.
On inflation easing, Schlossberg said, it could happen as the interest rate cycle lets up moving into 2023. A larger probability of recession at the turn of the year could result in a bigger letup in inflation than what the market anticipated.
The senior economist said that it will be challenging for equity markets in the coming months as the Federal Reserve moves aggressively, increasing the chances of a hard landing. “Aggressive interest rate increases certainly raise the chances of a hard landing in the economy. But there is a possibility, given some of the positives out there, that we could still achieve that soft landing.”Schlossberg added that he thinks inflation will settle at a higher level this time than the levels seen in the decades leading up to the pandemic. “We don’t see the Federal Reserve pumping liquidity in the financial markets to the same degree. So you won’t get the tailwind in the equity market to the extent we did earlier, even as we pull out of this economic slowdown at the turn of the year.”