Analysis: The Federal Reserve faces challenges as rising oil prices may undermine expectations of a decline in U.S. inflation

Odaily Planet Daily News - The conflict between the U.S. and Iran has been ongoing for nearly a month, with shipping through the Strait of Hormuz continuously disrupted and the global energy supply system in turmoil, leading to skyrocketing international oil prices. First, global inflation is facing a comprehensive rebound, and rising oil prices will transmit along the entire industrial chain. The costs in all sectors, including energy, food, transportation, and chemicals, will surge, putting more pressure on economies like Europe, Japan, and India that heavily rely on energy imports. The U.S. is a net exporter of energy, but inflationary stickiness could become entrenched, placing the Federal Reserve’s monetary policy in a dilemma. As of now, the average gasoline price in the U.S. has surged over 30% in three weeks, with high oil prices directly reversing the prior trend of declining inflation and completely overturning market expectations for interest rate cuts.

A prolonged high-interest-rate environment will directly suppress the U.S. real estate market, corporate financing, and stock market valuations. This year is particularly significant as it is the U.S. midterm election year, and gasoline prices are one of the most sensitive livelihood indicators for American voters. From the perspective of global economic growth, there will be a slowdown, as high oil prices directly erode disposable income for residents, squeezing non-energy consumption while also raising production costs for businesses. (Jin Shi)