The good news for Trump is that if he doesn’t want the Federal Reserve to hike rates twice before year end, he has the tools to stop it.
That’s not the use of legal threats and other intimidation but ending the war in Iran. The resilience of oil market to lost supplies has been remarkable so far this year, defying analysts for months but the laws of supply and demand remain unbroken. The combination of the release of strategic reserves and (in particular) supressed Chinese demand kept a lid on oil but it appears that’s ending. China has returned to the market and there isn’t enough oil to go around.
Today, we’re seeing signs of a scramble to secure supplies with brent and WTI both up 6% in the ninth consecutive day of gains. Brent is at the highest level since May.
The current rise in energy prices is ensuring an ugly CPI print for September and is stoking political pain. The Fed has talked at times about the transitory nature of oil price inflation but Trump himself yesterday said he thought the war would end after the midterms — partially sparking the rally — and there are reports this week of adviors mulling a war that continues until after Trump’s term.
The good news — if there is any — is that the spike in oil is a good reason for Trump to get back to the negotiating position. The bad news is that he will be negotiating from a position of weakness if he’s forced back due to oil prices.
For central banks this is a massive headache and the bond market isn’t making many allowances for a change today. US 10-year yields are up 11 bps on the day to 4.94% and that’s perilously close to the 5% level that no one wants to see.
This article was written by Adam Button at investinglive.com.