Three more hikes, persistent high rates and $100 oil… I’m questioning how long that combination can last.
I’m not interested in arguing with a hike that has already happened. I’m interested in what the market now needs the economy to deliver.
The Fed raised its target range to 3.75–4.00%. The post-meeting pricing shown here goes considerably further, roughly three additional quarter-point increases, followed by almost no easing through the end of 2027. That requires inflation to remain persistent enough, and demand resilient enough, to justify both the higher rate and the time spent there.
Oil makes that judgement harder. An energy shock can initially lift inflation while supporting a hawkish policy response. But higher essential costs and higher borrowing costs can also weaken the demand needed to sustain it. The sequence matters.
I can believe the next hike is justified without believing the whole subsequent path will be delivered.
Below, I connect that distinction to the rates, FX and commodity positions I’m considering including where I’m taking risk now. Subscribe to read the trades and the evidence that would change my mind.
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