Bank of America: If Oil Price Shock Persists, It Could Pave the Way for Fed Easing Policy

On March 10, Bank of America said in a report that while markets currently view rising oil prices as a bigger inflation threat, supply shocks actually pose risks to both sides of the Fed’s dual mandate. The report noted monetary policy will only tilt toward tightening when consumer demand is strong enough and economic activity can absorb the supply shock—allowing the Fed to focus on inflation as it did during the 2022 Russia-Ukraine conflict. However, the bank pointed out economic demand was far stronger then: the unemployment rate stood at 4%, core PCE inflation topped 5%, nonfarm payrolls grew by 500,000 jobs monthly, and consumers still held large amounts of stimulus funds. Today, job growth is slower, inflation is moderately elevated, and fiscal stimulus is more limited. The bank argues that if the oil price shock persists, it will create conditions for the Fed to implement a more accommodative monetary policy. (Source: FXStreet)