Chicago Fed President Austan Goolsbee said rising oil prices may slow progress on bringing inflation down. He said the timing of the increase is a concern.<\/p>\n
He said the impact depends on how long higher oil prices last. He said a longer period could affect consumer sentiment and raise costs for food and manufacturing.<\/p>\n
He said higher petrol prices can raise inflation expectations. He said this could make inflation harder to control.<\/p>\n
He said he remains concerned about inflation, even as the economy had shown some resilience. He said the oil price shock adds more uncertainty.<\/p>\n
He said uncertainty is linked to a low-hire, low-fire labour market. At the time of reporting, the US Dollar Index (DXY) was up 0.45% at 100.01.<\/p>\n
The recent concerns about rising oil prices are creating a more uncertain environment for us. With West Texas Intermediate crude recently crossing $95 a barrel after further OPEC+ production cuts, the chance of inflation remaining stubborn is increasing. This uncertainty suggests it’s a good time to consider buying volatility through options on the VIX index, which has already ticked up to 18.<\/p>\n
This oil price shock could directly impact inflation expectations, making the Federal Reserve\u2019s job harder. We are seeing this priced into the rates market, where futures now imply less than a 40% chance of a rate cut by the July meeting, down from over 75% just a month ago. Traders should position for a scenario where rates stay higher for longer, which could involve selling interest rate futures.<\/p>\n
A more hawkish Fed directly supports a stronger dollar. The US Dollar Index (DXY) is already pushing past 100, and this trend is likely to continue if other central banks, like the European Central Bank, remain on a path to cut rates sooner. A straightforward trade is to stay long the dollar against the euro or other currencies with a more dovish outlook.<\/p>\n
For equity markets, this is a challenging setup as higher energy costs and borrowing costs can squeeze corporate profits. We should consider protective put options on broad market indices like the S&P 500. At the same time, the energy sector itself is a clear beneficiary, so long positions in energy ETFs or call options on major oil producers offer a good hedge.<\/p>\n
We saw a similar situation unfold back in 2022, when a spike in energy prices helped keep inflation elevated and forced the Fed into an aggressive hiking cycle. Looking back at how markets reacted during that period provides a valuable playbook for the coming weeks. The key takeaway was that what seemed like a temporary shock had lasting effects on monetary policy.<\/p>\n
The latest inflation data from March showed core CPI was stickier than hoped, coming in at 3.4%. This existing inflation problem, now combined with an oil shock, complicates the path forward. This low-hire, low-fire environment mentioned means businesses are hesitant, which further supports a cautious and defensive trading posture.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Goolsbee warned rising oil prices could slow disinflation; lasting increases may lift expectations, costs, and uncertainty.<\/p>\n","protected":false},"author":103,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-46342","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46342","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/103"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=46342"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/46342\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=46342"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=46342"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=46342"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}