Impact on interest rates due potential oil bull market

[takuma sato]

If we consider oil as one of the main drivers of inflation when the price goes up, since goods are moved across sea and air and all of these long distance vehicles require fuel, prices of about everything will go up, beside making it more expensive to fill your tank. Basic goods such as food, beside the transportation aspect, may also go up, since you need machines for planting seeds, maintaining crops, and so on. Oil continues to be a main part of modern society. And so if we take this as fact, then we have to ask ourselves: What does Jerome Powel do now?

Powel now has a good reason not to cut. The bombings on Iran may create a spike in oil, because of various geopolitical reasons and whatnot, and so you have this problem now, since if you lower the federal funds rate, you may be doing so right before prices go back up, so this doesn't seem like a great idea. At the same time, some people predict that rates cannot stay elevated for much longer without creating a sort of a recession event, because the debt that everyone has gets updated with the new interest rates, and so eventually people that have a low interest rate on their debt meet the new 4%+ rate, and some claim this will create a lot of unemployment and bankruptcies, because a lot of activity has been surviving from low interest rates we saw during Covid. So the question seems clear: What does Powel do and what happens to the markets in this context now?

[Darker45]

Yeah, the turmoil in the Middle East is probably a good reason not to cut rates. Cutting rates just when the unstable situation in the region will most likely push oil prices up will only push it further. That would only turn things worse. But he's certainly closely monitoring the situation now, carefully weighing his available options. In the meantime, the rates remain. It's probably just a wait-and-see situation until something big comes up. 

However, it seems the Middle East situation isn't really a regional conflict. It's mainly between 2 nations. Although regional distribution might be disrupted especially when Iran will shut the Strait of Hormuz, deciding so will only put itself in a worse situation. That's probably not happening. It's a double-edged sword.

[WillyAp]

There are different investor types in this world.
Some who just ship around vast amounts of money and where 05% difference is a make or break scenario.
Then there are institutional investors collecting of the likes above and below.
There is private investment, where the above now also stretch their fingers into.
Then there is the large companies suite which invest primarily in other suitable companies.
That is the upper level. In between there are several layers.

Below there are also 20 to 40 levels of investment types, mostly not affected by .5 % points.

[BIT-BENDER]

If we are talking about what impact the recent US attack on Iran will cause a spike in oil will be amongst them but there are more alternative in getting oil from other countries although I agree it will have an impact but what we should be more concerned is Iran closing up crucial Shipping lane, they have threatened this and the impact will be felt as it will cause spike in the price of some goods and also create scarcity. And we know when demands are high and supply is low the price goes up.

[AVE5]

If we are talking about what impact the recent US attack on Iran will cause a spike in oil will be amongst them but there are more alternative in getting oil from other countries although I agree it will have an impact but what we should be more concerned is Iran closing up crucial Shipping lane, they have threatened this and the impact will be felt as it will cause spike in the price of some goods and also create scarcity. And we know when demands are high and supply is low the price goes up.

And my most concern with the closure of the shipping border as a result to the ongoing war is that it's going to cause highily inflation that may not have seen for long now because the gravity of this Iran and Israel spikes tensions to WW2 which is going to drain the economic and make lives miserable with global inflation.
I also agree with the Op that oil rate is the utmost that drives the cost of living.

[gunhell16]

If we are talking about what impact the recent US attack on Iran will cause a spike in oil will be amongst them but there are more alternative in getting oil from other countries although I agree it will have an impact but what we should be more concerned is Iran closing up crucial Shipping lane, they have threatened this and the impact will be felt as it will cause spike in the price of some goods and also create scarcity. And we know when demands are high and supply is low the price goes up.

That's exactly what will happen there, there will really be a sudden increase in the price of oil in the market because we know that Iran is one of the suppliers of it all over the world, so meaning many countries will be affected by the conflicts between the two countries that are currently fighting, which the US is now even getting involved in.

I thought before that Trump didn't like wars or conflicts between countries, because he promised during the election that he would stop the conflict between Ukraine and Russia,
but when he took office, he didn't fulfill that, and now here is Israel and Iran, and the US is acting like he's just like Biden in this regard.

[STT]

Wars are expensive and often futile which is enough reason to avoid them.  The argument here is some will say it could not be prevented and as Iran is actively becoming more dangerous to every other country it was arguable as inevitable.
    I will try to be optimistic but wars can make things worse even if somehow victory is declared, for example Iraq was in chaos there the victory was quite false to many.

The oil price is already part of inflation and retail price data, at present the rises are speculative but we'll have to see if the effect is real.    For a long time Iran was already considered unreliable supply except perhaps to China who have their various initiatives and are the largest buyer.   OPEC was already planning higher output if I remember right.
  Inflation is long term imo, for good reason already too many dollars were produced not relative to actual growth but debt.

[davis196]

If we consider oil as one of the main drivers of inflation when the price goes up, since goods are moved across sea and air and all of these long distance vehicles require fuel, prices of about everything will go up, beside making it more expensive to fill your tank. Basic goods such as food, beside the transportation aspect, may also go up, since you need machines for planting seeds, maintaining crops, and so on. Oil continues to be a main part of modern society. And so if we take this as fact, then we have to ask ourselves: What does Jerome Powel do now?

Powel now has a good reason not to cut. The bombings on Iran may create a spike in oil, because of various geopolitical reasons and whatnot, and so you have this problem now, since if you lower the federal funds rate, you may be doing so right before prices go back up, so this doesn't seem like a great idea. At the same time, some people predict that rates cannot stay elevated for much longer without creating a sort of a recession event, because the debt that everyone has gets updated with the new interest rates, and so eventually people that have a low interest rate on their debt meet the new 4%+ rate, and some claim this will create a lot of unemployment and bankruptcies, because a lot of activity has been surviving from low interest rates we saw during Covid. So the question seems clear: What does Powel do and what happens to the markets in this context now?

1.The oil price spike might happen, or it might not happen. There's no reason for us to try to predict the future.
I read news about Israel and Iran agreeing on a ceasefire. I don't know if this is true, though.
2.The biggest reason for FED not to decrease the interest rates is the trillions of USD, which were injected in the US economy during the COVID pandemic. The amount of US dollars in circulations must be reduced. The USD money supply must be reduced as well. This might cause a short term recession, but it is the only way for the Federal Reserve to lower the USA inflation levels in the long term.

[Fortify]

It looks like hostilities are going to wind down and it's in nobodies interests in the region for it to escalate much further. Besides that it is pretty difficult for both sides to escalate further. Israel will be exhausting a lot of resources in their missile defense shield and Iran has likely lost a large part of its launch capabilities already. Both got to show off the ability to attack the other but no land invasion beyond that is possible. Israel set back Iran's nuclear ambitions quite substantially which is what they claimed to want. Hopefully Iran will see sense and not continue the nuclear path, because if you claim to want to eradicate Israel then you shouldn't be allowed them and they've only ever claimed to want it for power generation anyway.

It seems like oil prices might dip again now, hopefully the ceasefire holds and neither side is losing much from this point.

[d5000]

Oil prices have already dipped more than 10% as for now the situation seems more stable after Netanyahu stopped the attacks. But even in the moment of maximum tension, the price barely reached the highs of early 2025. The trend has been bearish in 2024/25 since some Middle Eastern nations like Saudi Arabia decided to expand their production capacity in a context of widespread global stagnation or recession.

It's interesting that in the past oil price increases had very different outcomes on inflation. In the 1970s with the big oil crisis the inflation rates increased a lot to about 10% yearly in several major countries, comparable to what happened in 2022 as a consequence of the Russian Ukraine invasion. The oil price increase in the late 2000s and early 2010s in contrast moved inflation rates much less (the highest spikes were around 5% but only for a very short time). The 2011 oil price increase to >100$ barely moved CPI rates.

IMO everything would depend on the economic situation: if the context is of recession and/or stagnation like now, an "oil price shock" also in the mid-2020s would probably have only consequences like in the late 2000s/early 2010s. It could be an excuse to not cut interest rates but probably not enough to increase them.

If the conflict escalates again once the economy of major markets recovered (e.g. in 1-2 years) then the consequences could be much harsher, more comparable to those in the 1970s or in 2022.

[DeathAngel]

Seems oil is down fairly significantly since Israel first struck Iran. Fears of Iran shutting The Strait Of Hormuz which would seriously impact the worlds oil supply have subsided. Usually when something is so telegraphed & everybody thinks it’s so obvious, nothing ends up happening. Oil prices will not affect interest rates in the short to medium term.

[takuma sato]

Just in:

POWELL: ON TARIFFS, ALL FORECASTERS EXPECT A SIGNIFICANT INCREASE IN INFLATION

So Powel is still hawkish, with these words you cannot expect a rate cut anytime soon. Unless hew ants to surprise the market to get the change with unexpected odds on the forecast.

Some more reports on Powel's talk:

*POWELL SAYS FUTURE TRADE DEALS MAY ALLOW FED TO CONSIDER CUT

POWELL: AT SOME POINT WE'LL RESUME RATE CUTS

I think we shouldn't expect rate cuts. Trump is not helping calling him low IQ and stupid, Powel may not cut rates just to piss him off, but I hope he really follows the data.

[ellie888]

On one hand, high oil prices push inflation up, so cutting rates too soon could make inflation worse. But on the other hand, keeping rates high for too long risks slowing the economy too much, maybe even causing a recession like you said. The markets are probably nervous because it’s hard to find the right balance between controlling inflation and not choking growth. I guess Powell has to keep watching the data closely and try to be ready to adjust if things change quickly — especially with all the geopolitical stuff shaking up oil prices.

[₿itcoin]

It feels like we are walking a tightrope here, dude. Oil upset always crinkle wide, food, logistics, transport, in every aspect. Literally, it is the main fuel of inflation. So what about Powell? I will say he is caught between two legs, no way to free up. Cut rates and you risk a flareup of inflation right before oil spikes, right? Now what will you do? hold rates? No way, you just risk grinding credit markets down, choking small businesses and real estate, lol.

its reminds me of last 2007 pre GFC. You know, rates stayed high too long. Only this time debt is bigger and geopolitical issue more messier. So no way, Powell is in check, not mate... yet. Just lets see who blinks first, inflation or market.

[m2017]

If we consider oil as one of the main drivers of inflation when the price goes up, since goods are moved across sea and air and all of these long distance vehicles require fuel, prices of about everything will go up, beside making it more expensive to fill your tank. Basic goods such as food, beside the transportation aspect, may also go up, since you need machines for planting seeds, maintaining crops, and so on. Oil continues to be a main part of modern society. And so if we take this as fact, then we have to ask ourselves: What does Jerome Powel do now?

Perhaps oil is a source of inflation (although inflation occurs due to the imperfection of the current world economic model) due to the limited and finite nature of this extracted resource. Unfortunately, oil reserves are limited, which means that the less oil remains, the more expensive it becomes. Which affects other goods and services that need to be transported, as you say.

Powel now has a good reason not to cut. The bombings on Iran may create a spike in oil, because of various geopolitical reasons and whatnot, and so you have this problem now, since if you lower the federal funds rate, you may be doing so right before prices go back up, so this doesn't seem like a great idea. At the same time, some people predict that rates cannot stay elevated for much longer without creating a sort of a recession event, because the debt that everyone has gets updated with the new interest rates, and so eventually people that have a low interest rate on their debt meet the new 4%+ rate, and some claim this will create a lot of unemployment and bankruptcies, because a lot of activity has been surviving from low interest rates we saw during Covid. So the question seems clear: What does Powel do and what happens to the markets in this context now?

What can be said here is that much of the activity that survived low interest rates will simply cease to exist in hard times, creating additional pressure on unemployment and bankruptcies. Unviable businesses are doomed to fail.

[Asiska02]

If we are talking about what impact the recent US attack on Iran will cause a spike in oil will be amongst them but there are more alternative in getting oil from other countries although I agree it will have an impact but what we should be more concerned is Iran closing up crucial Shipping lane, they have threatened this and the impact will be felt as it will cause spike in the price of some goods and also create scarcity. And we know when demands are high and supply is low the price goes up.

We cannot tell the whole impact and how in-depth those impact will come until it happens. Even having another alternatives to getting oils from other countries, it doesn’t mean it can be gotten that easily or there is enough on ground to help get through to those countries. Some scarcity in those affected regions will happen, new trade deals have to take place before commencement of shipping to those areas. All this can take a while and with the high demand of this products during this period, it will definitely cause a spike in price before things will begin to turn normal again after a while when the deal actually went through and they came to a good agreement for the benefit of both parties.

[batang_bitcoin]

And my most concern with the closure of the shipping border as a result to the ongoing war is that it's going to cause highily inflation that may not have seen for long now because the gravity of this Iran and Israel spikes tensions to WW2 which is going to drain the economic and make lives miserable with global inflation.

The Strait of Hormuz has got 20% of oil supply in the world, and that's a lot. While others can get the oil through other countries and route, this is something to be worried of. And as the ceasefire continues, it's possible that Iran will still close that and have the condition that every ship that passes through it will be theirs to approve upon arrival. Which means, that there could be more fees and taxes for them and money. And the domino impact of it will be there.

I also agree with the Op that oil rate is the utmost that drives the cost of living.

It's always been because everything that we consume also consumes oil for transport.

[STT]

I dont see how the oil price is the driver of inflation when USA has so much energy available if it can extract and refine it within efficient cost to sell at market prices.   The ironic thing is the oil price or at least the market price available is not high enough to meet the costs and raise production in these near located areas.
   We are relying far too much on the middle east because they have the cheapest production in the world and the oil is sweet nicely refined oil as well.   Venezuela actually has the largest reserves but the oil there is sour and full of pollutants which must be removed first adding cost to the process.

   Its efficiency which is lacking most in the whole process and somehow we bring oil across the world instead of using whats already sitting within the same state as the consumers.   Oil and every other commodity is likely to do well for a decade or more, far better then FIAT currency related assets and its correct to expect and invest in commodities or any energy product as its been neglected too long.  Cheap rates means the debt is very expensively priced, it cant last forever.

[takuma sato]

It feels like we are walking a tightrope here, dude. Oil upset always crinkle wide, food, logistics, transport, in every aspect. Literally, it is the main fuel of inflation. So what about Powell? I will say he is caught between two legs, no way to free up. Cut rates and you risk a flareup of inflation right before oil spikes, right? Now what will you do? hold rates? No way, you just risk grinding credit markets down, choking small businesses and real estate, lol.

its reminds me of last 2007 pre GFC. You know, rates stayed high too long. Only this time debt is bigger and geopolitical issue more messier. So no way, Powell is in check, not mate... yet. Just lets see who blinks first, inflation or market.

It's really difficult to tell if Powel has a political agenda or not in his decision to not move rates. He did only a rate pre-elections which some argued was a pro-dem take. Others really think he is going with the data and that he stopped lowering rates because of Trump's tariffs. In any case, oil is going down now, after the Iran event is done. We are already back below the massive descending triangle that lasts since 2022. A lot of people were short as it broke down and got caught during this event, so not some got liquidated and we are back down. What Powel does? probably keep delaying for more clearance, but there is never enough clearance to act, this is the thing with economy, you have to take a chance or you never invest, I think they are stuck in this mentality and so they are not able to take an decisions (and sometimes not doing anything is the right strategy).