Chart of the Week
Since May, long-term US interest rates have been increasing. The 10-year rate rose from 3.4% in early May to 4.6% by the end of September, reaching its highest level since 2007. This rise in interest rates aligns with the increase in oil prices.
The recent rise in oil prices presents an upward risk for inflation and a downward risk for economic growth. Over the past few months, markets have primarily responded to the “inflationary” aspect of increasing oil prices, which impacts expectations related to central banks’ monetary policies. A final rate increase by the Fed is now seen as possible within the next few months, and markets do not foresee a loosening of monetary policy until at least mid-2024.
At the same time, the increase in oil prices creates additional costs for businesses and households. In the United States, this phenomenon is occurring at a time when the stock of savings built up during the pandemic has fallen sharply, the impact of rising interest rates is being felt in the housing market, and the moratorium on student loans is coming to an end (in October). As a result, disposable household income will be significantly affected, which could put pressure on growth. In the long run, however, this environment could help bring inflation back down to its target level of around 2%.
Written on September 29, 2023. This is not an investment advice. Opinions subject to change.
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