The Fed and oil shocks

Article 1 of the handbook given to each central banker when they take up their duties states that they must not react to an oil shock. The level of policy interest rates has no direct or immediate impact on the global oil market. Article 2 states that Article 1 is suspended if the shock in question is likely to cause inflation expectations or wages to spiral. After six days of war between the United States and Iran and an associated $ 13 jump in the price of oil, Article 1 applies without hesitation. However, this shock will have an impact on the monetary debate inside the FOMC. In the short term, inflation will rebound, which will close or at least reduce the scope for rate cuts in 2026.