The embed is a screencap from Facebook several days ago, but I've seen a similar forecast during a live discussion on Bloomberg TV. The next Consumer Price Index report is scheduled for this coming Friday, April 10, before the markets open. This will cover the month of March and thus will be the first one to reflect rising oil prices from the U.S./Israel war on Iran.
The second embed is also from before this weekend. The Federal Reserve is in an impossibly terrible position if the anticipated "stagflation" occurs. The investment community has been counting on a decrease in federal funds rates, arguing over one vs. two cuts in the year ahead. More recently they have expected no rate cuts. Now the possibility of a rate increase looms.
Before we started this war, nobody would have imagined the Fed increasing rates. It's probably not priced into the market now, but even the possibility of a rise in the future will have major reverberations on equity prices and bond yields.
Stan, your commentary is spot on, but I just wanted to note that "the market's expectation of a rate hike" is misleading wording by Mohamed. According to the markets at this moment, the chance of a rate hike peaks at 18.8%, in January 2027, with a 12.7% chance for a cut by then. It's a possibility, but still an unlikely scenario. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html (Use the Probabilities option.)
ReplyDeleteI'll also opine that, while no one likes elevated rates, the real problem is sudden swings. Like when we hit a recession and they have to suddenly cut rates, like in 2020, or when we hit an inflation spike and they have to suddenly hike rates, like in 2022. Compared to those relatively recent shocks, this is fine. But suddenly elevated oil prices could threaten other major swings in the economy...
True at present, but let's run the numbers again if/when Brent and WTI reach 150...
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