Oil Price Realities May Soften Fed Rate Moves

(Bloomberg) — The Federal Reserve, when considering how much to raise interest rates to keep inflation in check, might call upon the law of gravity: nothing, even the price of oil, goes up forever.

When the cost of a barrel of crude oil touched $140 on June 16, almost double its price a year earlier, the sky may have seemed the limit.


But even with soaring rising demand in China, India and some other emerging-market countries, prices at some point must plateau, and perhaps come down. A doubling of oil prices simply has to reduce demand, which in turn will moderate the price.

So Fed officials have common sense on their side in assuming consumer prices won’t increase indefinitely at a 4 percent rate, or higher, because of oil. Food prices are also playing a big role in keeping inflation high at the moment, and they too will eventually top out.

Bloomberg