The Federal Reserve is moving towards raising interest rates amid rising inflationary pressures.
The escalation of oil prices and the war situation in the Middle East are pushing the U.S. Federal Reserve (Fed) into a position where it must adjust its monetary policy.
The U.S. administration attacked three nuclear facilities in Iran last weekend, following Iran's response to Israeli airstrikes. Iran has blocked the Strait of Hormuz, the world's most critical oil shipping route.
JP Morgan's analysis predicts that if the Strait of Hormuz is closed, crude oil prices could reach $130 per barrel, pushing U.S. inflation up to 5%. This increase is similar to what occurred in March 2023, when the Fed continuously raised interest rates in response.
The impact of long-term oil shocks on the economy.
According to a Fed study in 2010, prolonged oil shocks will lead to reduced consumption and investment, while weakening the U.S. dollar. Oil-importing countries like the U.S. will become poorer as energy prices rise, causing trade imbalances.
This leads to a reduction in national budgets, depreciation of exchange rates, and worsening trade balances. Consumers and businesses try to reduce oil consumption, but nevertheless, the damage is unavoidable. As a result, the oil trade balance deteriorates, while the non-oil balance improves only slightly due to the economy stagnating.
Iran warns it will respond after accusations of attacking nuclear facilities.
In just ten days, Israel conducted airstrikes against Iran. Iran responded strongly. Last weekend, the U.S. joined in, attacking three of Iran's nuclear facilities. In response, Iran's Foreign Minister declared that the country 'will keep all options open to protect its sovereignty.'
Since 2000, Iran has repeatedly threatened to blockade the Strait of Hormuz. If Iran does this, global fuel prices will immediately skyrocket, causing profound disruptions in the international energy market.
The Strait of Hormuz is only 21 miles wide but transports one-fifth of the world's total daily oil production. It also has shipping traffic that surpasses both the Panama and Suez canals, along with nearly 35% of LNG transported by sea. The U.S. Navy has long maintained strategic forces in this area.
The risk of a global oil super-surplus - the whole world is waiting for the response of the great powers.
If Iran blocks the Strait of Hormuz, the global energy market will fall into a severe shortage overnight. This will almost certainly trigger a military response from Washington, Tel Aviv, or other allies.
U.S. Secretary of State Marco Rubio advises China to intervene and urge Iran to compromise. China is Iran's largest customer in the oil and gas sector and maintains friendly diplomatic relations, publicly criticizing Israel's actions.
Trump demands lower interest rates, Powell remains silent in the face of new inflation growth.
In the context of rising global tensions, President Donald Trump continues to call for lower interest rates. In the lead-up to the 2024 re-election, he has repeatedly criticized Fed Chairman Jerome Powell, urging for cheaper borrowing rates.
Just after returning to power, Trump maintains a tough stance, continuously criticizing Powell through press conferences and social media. However, Powell chooses to avoid responding, remaining neutral and not taking the bait.
Lowering interest rates at this time is unlikely to happen. With oil prices potentially reaching $130 and inflation returning to 5%, cutting interest rates would only complicate the situation further. Instead, the Fed is likely to continue raising interest rates as it did in 2023, based on the clear relationship between oil prices and inflation.
In the context of Trump demanding lower interest rates while Powell is influenced by pressures from rising costs, the U.S. Central Bank once again faces both political and economic pressure.
Source: https://tintucbitcoin.com/fed-nang-lai-suat-do-gia-dau-tang/
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