Macro Musings – From oil spike to demand squeeze in US
Oil spike easing but will demand take the hit next?
A fragile ceasefire has raised hopes that the oil spike is finally unwinding, offering a potential breather for markets. Crude has already retraced about a third of its surge, but the real test lies ahead in weekend negotiations. So far, drivers aren’t feeling any relief – gas prices remain pinned near their highs, reinforcing the old rule that prices shoot up fast but drift down painfully slowly.
Inflation is flashing warning signs, even if the damage isn’t widespread yet. March’s 0.9 percent CPI jump – the biggest since 2022 – was driven by energy, while core inflation stayed tame. Elevated fuel costs are beginning to seep into transportation, food, and beyond, suggesting broader price pressures are just getting started.
For the Fed, the bind is tightening. Energy-driven inflation is heating up just as consumers — especially lower-income households – are feeling the squeeze. Purchasing power is slipping, demand is softening, and recession risks are creeping higher. If the oil shock fades with geopolitical tensions, the Fed should look through the inflation spike and resume cutting rates later this year to keep the economy afloat.
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