Investing

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting. Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.

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Let’s talk about fuel, specifically, let’s talk about petrofuels. Prices spiked to more than $120 per barrel in June, but are down to approximately $90 per barrel now. Slowing demand from both industry and retail consumers, likely due to the technical recession of 1H22, is putting downward pressure on prices. You’re likely familiar with at least one immediate effect, the 80-cent drop in gasoline prices over the past 6 weeks. These and other effects are starting to ripple through the economy.

Jim Cramer, the well-known host of CNBC’s ‘Mad Money’ program, has taken note, and he’s recommending that investors start beefing up their portfolios. “Oil’s down big, gasoline’s down big and you can now buy all sorts of stocks that benefit from cheaper fuel,” Cramer noted.

On the Street, the professional analysts are pointing out transportation-related equities that stand to gain from lower fuel costs. Airlines, trucking companies, and parcel delivery – all these use fuel, and a breathing space as prices fall from June’s peak prices will benefit their margins. Using TipRanks’ database, we pinpointed three analyst picks in these industries, to get a better idea of how this might play out.

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