#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
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
