By: Editorial Team, StoneX Media
The arrival of a new leader at the Federal Reserve usually sets off a guessing game about where interest rates head next, and this transition is no exception. In his first meeting, Kevin Warsh signaled a determination to get inflation back to the 2% target, and investors read it as pointing toward a hike rather than a cut. With prices still well above that goal, the market has shifted from expecting cuts to weighing the odds of tightening. Energy costs are one swing factor in that math, capable of easing the pressure without resolving it on their own.
Jon Hilsenrath is a StoneX Senior Advisor who spent three decades covering economics and the Federal Reserve at The Wall Street Journal and wrote a biography of former Fed leader Janet Yellen. He covers Federal Reserve policy and the inflation data that drives it, the same forces now tying energy prices to the rate decision.
"The war in the Gulf looks like it's ending. Maybe that'll cause some relief on gasoline and oil prices", Hilsenrath notes, pointing to one route by which inflation could cool without any move from the central bank. A drop in energy costs would feed through to headline inflation and could spare officials a difficult hike. He frames the coming stretch as decisive, with the focus shifting away from the Federal Reserve and toward the incoming data. "We're heading into a really critical period, not necessarily for watching the fed, but for watching the economy and the inflation data".
Cheaper gasoline only helps so much, because the inflation problem reaches well beyond fuel. Hilsenrath points out that the measure stripping out energy is still running hot, which complicates any hope that a calmer Gulf fixes the picture on its own. "That takes out the oil story. And that's also elevated. That tells us that it's more than just this war in the Gulf", he explains. New chair Kevin Warsh is not leaning on that core reading anyway, instead weighing a broader set of gauges including median measures, the Consumer Price Index and the personal consumption expenditures index.
If energy costs do not fall far enough, the Federal Reserve may still reach for a small, insurance-style increase. Hilsenrath describes a scenario the market has not fully absorbed, where officials raise rates briefly and then reverse course. "Officials expect to raise rates a little bit this year and then cut them next year", he says, calling it a round trip ticket. In his view the central bank could lift rates to keep inflation on a downward path, then take those increases back once the data confirms it, which breaks from the market's habit of treating the Fed as an inertial institution. Energy relief could ease the case for that round trip, but it would not be the deciding factor on its own.
Access live prices, supply and demand data and actionable market commentary across commodities, equities, currencies and more. Sign up for StoneX Market Intelligence today and receive a 14-day trial.
Sign up for a Market Intelligence trial today
--- Written by Gus Farrow, Senior Manager, StoneX TV
--- Expert: Jon Hilsenrath, StoneX Senior Advisor
StoneX TV content is created, produced, and distributed solely by StoneX Media Ltd (“StoneX TV”) and is provided for informational and educational purposes only. StoneX TV does not provide investment, financial, legal, or tax advice and does not make any recommendation or endorsement of any investment strategy, transaction, or financial instrument. Nothing in this content constitutes, or should be construed as, investment advice or a recommendation to buy, sell, or hold any financial instrument, including securities, futures, derivatives, digital assets, foreign exchange products, or CFDs. This content does not constitute an offer, invitation, or solicitation to engage in any investment activity. The information presented is general in nature and is not tailored to the financial situation, investment objectives, or risk tolerance of any specific person. You should not rely on this content as a substitute for independent professional advice. Investing and trading in financial instruments involves significant risk of loss and is not suitable for all investors. Past performance is not indicative of future results. Any views or opinions expressed are those of the presenter at the time of publication and are subject to change without notice. Such views may not necessarily reflect those of StoneX Media Ltd or its affiliates. StoneX Media Ltd and its affiliates, including StoneX Group Inc., may from time to time have positions in, or engage in transactions involving, the financial instruments referenced. This content may include general market commentary and opinion. It does not constitute independent investment research and has not been prepared in accordance with legal requirements designed to promote the independence of investment research. StoneX Media Ltd is not authorised or regulated to provide investment services and does not act in a fiduciary capacity. StoneX Media Ltd is incorporated in Ireland and operates in accordance with applicable Irish law. It is a wholly owned subsidiary of StoneX Group Inc. and is a separate legal entity from other subsidiaries within the StoneX Group, which may be regulated in various jurisdictions. StoneX Media Ltd does not act on behalf of, or provide services for, any regulated affiliate. This content is not directed at, and may not be distributed to, any person in any jurisdiction where such distribution would be contrary to local laws or regulations. Supporting documentation for any claims, comparisons, statistics, or technical data may be made available upon reasonable request, where applicable.
Our subscribers have access to comprehensive market analysis from StoneX spanning commodities, equities, currencies and more.
Three policymakers now want higher rates, yet the market's expected path for Bank of England hikes has moved in the opposite direction. That gap between a hardening committee and softening pricing is where the pressure on sterling is building.
A unanimous quarter point hike turned a long-running Federal Reserve warning into action, and the cost of floating rate debt moved the same night. What borrowers gained in clarity about intent, they did not gain about the path ahead.
A hold from the Bank of England is already priced, which moves the market-relevant information to how the Monetary Policy Committee splits and what it says. Cooling UK employment data and an inflation reading expected to firm leave the committee pulled in two directions at the same meeting.
Our market expertise, advanced platforms, global reach, culture of full transparency and commitment to our clients’ success all set us apart in the financial marketplace.
Reach
With access to 40+ derivatives exchanges, 180+ foreign exchange markets, nearly every global securities marketplace and numerous bilateral liquidity venues, StoneX’s digital network and deep relationships can take clients anywhere they want to go.
Transparency
As a publicly traded company meeting the highest standards of regulatory compliance in the markets we serve, our financials and track record are matters of public record. StoneX’s commitment to “doing the right thing over the easy thing” sets us apart in the industry and helps us build respect, client trust and new partnerships.
Expertise
From our proprietary Market Intelligence platform to “boots-on-the-ground” expertise from award-winning traders and professionals, we connect our clients directly to actionable insights they can use to make more informed decisions and achieve their goals in the global markets.
