#我的七夕交易分享 @How Oil Prices Affect the Federal Reserve’s Policy Path
The core mechanism through which rising oil prices are transmitted to monetary policy lies in inflation expectations.
Raising interest rates to weaken demand cannot address the root cause of inflation triggered by a supply shock; it can neither keep trade routes operating smoothly nor restart factories. If long-term inflation expectations do not rise, the Federal Reserve may “look past” the surge in oil prices. But this judgment rests on a key premise—inflation expectations must remain “anchored.” Barkin himself also acknowledged that we are currently in an era of more frequent supply shocks, with the oil shock being just the latest in a series of shocks over the past five years. If this situation continues, whether the Federal Reserve has the capacity to respond to all the shocks that follow will be a question it must answer. The market’s pricing already reflects this. On August 18, the probability that the Federal Reserve would leave rates unchanged in September rose to 63.4%, while the 2-year U.S. Treasury yield had fallen by about 20 basis points since July 23. This pricing of the interest-rate path reflects the market’s view that, in the current environment, the Federal Reserve is more likely to choose to wait and see rather than raise rates aggressively. But uncertainty remains. The minutes of the Federal Reserve’s July meeting are about to be released, and the market expects to gain more clues about the direction of interest rates from them. If oil prices remain above $85 per barrel, the pace of inflation’s decline could slow further, thereby reducing the Federal Reserve’s room to cut rates.$XTIUSD ‌

#日本5年期国债收益率创历史新高 2.18%—On August 18, 2026, Japan’s 5-year government bond yield rose to this level, setting a new record. On the same day, the 10-year government bond yield touched 2.945%, reaching a nearly 30-year high since 1996. The entire yield curve shifted upward, marking a fundamental reshaping of Japan’s decades-long ultra-low interest rate environment.
This surge resulted from pressure from both inside and outside the country. Internally, market expectations of an earlier Bank of Japan rate hike heated up sharply—overnight index swaps showed that the probability of a rate hike in September had reached as high as 80%, with rates potentially even being raised to 1.25%. Investors therefore sold government bonds in droves, driving yields higher. Externally, rising long-term U.S. interest rates created a “pull effect,” while tensions in the Middle East pushed up international oil prices, intensifying concerns over imported inflation in Japan and further strengthening rate hike expectations.
More importantly, the 5-year government bond yield directly reflects market expectations for the policy rate path over the coming years—the figure of 2.18% means the market believes the Bank of Japan’s era of monetary easing has come to an end. Continued rises in yields will increase mortgage and corporate financing costs and may even add to the interest repayment burden of the world’s largest public debt holder. What Japan’s bond market is experiencing is not a brief fluctuation, but a profound shift in the monetary paradigm.$JPN225 ‌