West Texas oil seeing steepest one-day decline since COVID 2020, but still $30/barrel higher than pre-Iran War. What are ripple effects on economy and consumer?
Host
Six week shock disruption, stagflationary impulse - how should Fed policymakers approach this?
Host
Eric Rosengren
Supply shock likely to be fairly persistent due to Middle East infrastructure destruction and ongoing traffic disruption.
Even when normalized, need to make up for destroyed energy infrastructure between Gulf States and Iran.
Eric Rosengren
Shock affects oil-based products like transportation - plane tickets to California are expensive.
Eric Rosengren
Next CPI and PCE inflation numbers will show core staying at 3% or higher - difficult place for FOMC.
Eric Rosengren
Difficult for committee to lower rates until more certain core inflation drifting down - likely not until fall.
Even before conflict, Fed was in wait-and-see mode, markets didn't expect rate move for months. Strong employment report lessens downside risks.
Host
Eric Rosengren
Agrees downside risk to economy based on employment report probably not serious.
Eric Rosengren
Inflation impulse from shock is pretty certain, will take time to funnel through economy.
Eric Rosengren
March meeting showed 7 members didn't want to lower rates at all this year, 7 wanted only one cut - committee already unsure about cuts before oil shock length known.
Eric Rosengren
Difficult to see how Fed would cut rates unless economy weakens significantly from here - not seeing that data.