- Federal Reserve (Fed) official Daly clearly pointed out that due to the oil supply shocks induced by recent geopolitical situations, the timeframe for US core inflation to fall back to the two percent target range will be extended, and monetary policy is likely to maintain a wait-and-see approach in the short term.
- Regarding the current two-week ceasefire agreement, if the central pricing of oil substantially declines, there may still be room for a single rate cut within the year; however, if disruptions in the oil supply chain persist leading to heightened inflation stickiness, the policy rate will remain at the current restrictive level for a considerable period.
- The upcoming release of the United States' March Consumer Price Index (CPI) is expected to reflect the pass-through effects of rising energy costs. Under the dual pressure of inflation acceleration and economic momentum slowdown, the market should be wary of the stagflation risk disrupting the macro-pricing system, yet the likelihood of further rate hikes remains relatively constrained.
Monetary Policy Scenario Simulation and Interest Rate Path
According to the latest policy outlook from the Federal Reserve Bank of San Francisco, the current US macroeconomic fundamentals and labor market display certain resilience, which underpins the Fed's maintenance of the current restrictive policy rate. However, external energy shocks prompt a reevaluation of the initiation point for the rate-cutting cycle. In the first scenario, if geopolitical conflicts can significantly cool down through ceasefire agreements and oil prices roll back previous geopolitical premiums, leading to a decrease in energy usage costs for businesses and residents, the Fed may consider a single rate cut to continue the normalization of monetary policy. Conversely, if prolonged conflicts cause ongoing supply chain constraints, with inflation stabilizing at high levels beyond expectations, maintaining the benchmark rate unchanged will become the primary policy option.
Inflation Data Expectations and Energy Cost Penetration
The upcoming release of March's Consumer Price Index (CPI) data has become the core focus of recent market battles. Forward indicators show that the rapid surge in earlier oil prices is beginning to permeate all dimensions of the real economy. The increase in gasoline retail prices has directly raised the explicit costs of resident travel, while the soaring prices of fertilizers and other agricultural inputs may gradually transmit into core food inflation over the coming quarters. This supply-side-driven price rise is likely already factored into macro traders' pricing models for higher-than-expected CPI data. If the inflation rebound exceeds the market's tolerance range, the short-term US Treasury yield curve could face further flattening pressure.
Labor Market Resilience and Dual Objective Balance
In dealing with supply-side shocks, the Federal Reserve (Fed) faces a complex balance between price stability and full employment. Elevated energy prices have a double-edged sword effect; on one hand, they directly raise the broad inflation level, while on the other, they squeeze corporate profits and dampen residents' actual consumption willingness, thereby dragging down overall economic growth. If overly tight monetary policies (such as resuming rate hikes) are enforced to forcibly suppress imported inflation, they may cause unnecessary damage to the labor market which is on a normalization path, potentially leading to tail risks of a deep economic recession. Therefore, in evaluating future policy paths, decision-makers will focus more on observing the delayed impact of energy shocks on core service sector employment data.
Macroeconomic Pricing Logic on the Edge of Stagflation Risk
While the probability of a complete stagflation scenario has not yet become the market's baseline case, the micro manifestations of "high inflation with weak growth" have emerged in certain industries. For instance, constrained by rising transportation costs and the decline in consumers' actual purchasing power, service consumer sectors such as tourism and airlines have begun to show signs of fatigue. Against this macro backdrop, the valuation logic of financial assets may undergo a phase shift. If oil prices remain at high levels with volatility, traditional energy and inflation-resistant assets may gain temporary preference from safe-haven funds, while highly-valued growth assets may face pressure from elevated risk-free rates affecting discount rates.
