By: Josh Cannington, VP - Interest Rate Derivatives
Rising oil prices are reshaping the global inflation outlook and disrupting expectations for monetary easing. The Federal Reserve now faces a renewed policy dilemma as supply-side pressures push inflation higher while growth signals remain mixed. This shift is forcing markets to reprice interest rate expectations, with fewer cuts now anticipated in the near term. The result is a more uncertain macro environment where energy markets are once again driving central bank decision-making.
Josh Cannington, Vice President of Interest Rate Derivatives at StoneX, specializes in managing interest rate risk across volatile market cycles. His expertise in translating macroeconomic shifts into actionable hedging strategies gives him a unique perspective on how energy-driven inflation impacts monetary policy decisions.
The Federal Reserve is being forced to delay rate cuts as oil prices drive a renewed surge in inflation expectations. Josh Cannington highlights that "Iran and the surge in oil has flipped that upside down", referring to prior market expectations that the Federal Reserve was close to neutral policy. Consequently, markets are now repricing the likelihood of easing, with rate cuts pushed further into the future. This shift increases borrowing costs for businesses and raises the risk that restrictive financial conditions will persist longer than previously anticipated.
Oil-driven inflation is constraining the Federal Reserve’s ability to respond to economic weakness using traditional policy tools. Cannington explains that "this is a supply shock", meaning interest rate adjustments have limited influence over the root cause of rising prices. As a result, the Federal Reserve must balance rising inflation against potential labor market deterioration without clear policy direction. This dynamic increases uncertainty for investors and businesses, as the risk of prolonged high rates or even renewed tightening remains firmly in play.
Oil prices feed directly into inflation, and higher inflation reduces the Federal Reserve’s ability to cut rates. As energy costs rise, policymakers must remain cautious to avoid reigniting inflationary pressures.
Oil price increases are a supply-side shock, meaning they are driven by external factors like geopolitics. Interest rate changes primarily influence demand, making them less effective in addressing supply disruptions.
Businesses may face higher borrowing costs for longer than expected. This makes it important to plan for scenarios where interest rates remain elevated or increase further.
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 See our financial videos hub--- Written by Lindo Xulu, StoneX TV Journalist
--- Expert: Josh Cannington, VP of Interest Rate Derivatives at StoneX
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.
Australian headline inflation cooled to 3.5% from 3.8% year over year, yet the trimmed mean measure barely moved and stayed above the Reserve Bank of Australia's target band. That gap between the headline number and the core detail is what rebuilt hike expectations, not the top line everyone reads first.
Australia's headline inflation rate fell in July while both of the underlying measures the Reserve Bank of Australia relies on held firm above target. Understanding how the trimmed mean and the weighted median are built explains why the softer headline number did nothing to reduce the risk of another rate hike.
The UK labor market is weakening across hiring, vacancies and payrolls, yet average earnings are still running warm enough to complicate the easing story. The split between private and public sector pay is what leaves the Bank of England without a clean signal in either direction.
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 bi-lateral 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 record of accomplishment 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.
