Rising oil prices, Fed’s rate outlook are in ‘two very different places’: Strategist

Invesco Chief Global Market Strategist Kristina Hooper joins Yahoo Finance Live to discuss rising oil prices and the Federal Reserve's interest rate hikes.

Video transcript

SEANA SMITH: All right, let's take a look at stocks here with just about 15 minutes to go in the trading day. We're looking at the Dow and the S&P holding onto gains. By far, the outperformer in today's action is crude. You're looking at crude up just about 6%. Energy, XLE, the top performing sector today. That move coming after members of OPEC+ announced another oil production cut. Let's talk about all this, what it means for the Fed going forward. For that, we want to bring in Kristina Hooper, Invesco chief global market strategist. Kristina, it's great to see you here. So how should we be looking at this from a market-- from an investor perspective?

KRISTINA HOOPER: Well, it's great to see you as well. I think what we have to anticipate is that it's going-- it's likely to boost headline inflation in the shorter term. Not dramatically, but it's certainly going to be an upward pressure on headline inflation. Having said that, though, what the Fed is really focused on is core inflation, in particular, services ex housing.

And so that wouldn't filter into that particular component for a long time. There tends to be a cascading effect, but it takes some time. So what the Fed is focused on and the impact of higher oil prices are essentially in two very different places. And I don't think it's going to change much about the Fed's trajectory going forward.

DAVE BRIGGS: What is your expectation, Kristina, for the May meeting? And has it moved at all as a result of, first, the banking crisis and now this on energy?

KRISTINA HOOPER: Well, I've always been of the opinion that the Fed would stop hiking at around this level, maybe one more rate hike. Now, certainly, when we got what I will call the mini banking crisis, that suggested to me that the Fud-- the Fed, excuse me, might err on the side of slightly more dovishness. But what we saw the Fed do and, really, what other central banks have done in the face of other mini crises is to roll out policy tools specifically focused on mitigating the damage from that particular crisis. And of course, we saw the US government step in, come up with a special bank credit facility, and address the issue that way.

So that really cleared the way for the Fed to, especially now that seems to have things seem to have calmed down a lot, really focus back on inflation and business as usual. So I always thought it was somewhere around this level, maybe 25 basis points higher. Now, I'm more convinced that we are going to see one more rate hike that will happen in May.

SEANA SMITH: Well, Kristina, in the spirit of the finals of March Madness being tonight, one of the titles here of your most recent note is, "Has the March Madness market madness ended?" Has it, and what do we need to look for as an indication that that actually did happen?

KRISTINA HOOPER: Well, it certainly seems to have temporarily abated. But as we know as market watchers, never say never. But what I would anticipate is that it's largely behind us because we didn't think it was systemic. We thought it was isolated, specific issues because of specific business models. Now, that doesn't mean, though, that there isn't another shoe to drop, that another mini crisis might also be created as a result of the Fed's aggressive tightening cycle.

However, I'm really confident in policymakers not just in the US, but around the world, because of how they've reacted to the crises that have popped up thus far in terms of moving very quickly and effectively in terms of stemming them. So we could see some other small madness erupt, but I'm pretty confident we would be able to get past it, isolate it and get past it rather quickly.

DAVE BRIGGS: Of course, now we're in this strange dichotomy with jobs number coming out Friday. We used to-- markets used to cheer a strong jobs number. Now it comes with the implication that we might see higher rates. So what's your expectation for Friday? And what are the implications on the markets?

KRISTINA HOOPER: Well, I'm hoping that we don't get a number that's higher than expectations, right? It's all about beating or exceeding expectations in terms of how markets react. But the reality is, that's looking in the rear view mirror. The jobs report really is not forward-looking, although wage growth does give us a good sense of inflationary pressures. And so that's really going to be the metric I'm most focused on, and again, hoping that it meets or is lower than expectations.

SEANA SMITH: All right, Kristina Hooper, we have to leave it there. As always, great talking to you. Thanks so much for joining.