Bank of America: Oil Price Shock Could Raise Fed Inflation Forecasts; Powell Will Emphasize Caution

Bank of America states that the Federal Reserve will have to respond to another round of supply shocks—rising oil prices. In the economic forecast summary (SEP) released before the March Federal Reserve meeting, overall and core inflation forecasts may be revised upward. Bank of America reports: “If long-term growth expectations are also revised upward, we expect the median dot plot for long-term interest rates to move slightly higher.” In this scenario, the bank believes that Federal Reserve Chair Powell may acknowledge the risk of stagflation while emphasizing a wait-and-see approach.