Middle East war awakens the dream of interest rate cuts? Bank of America: Even if the ceasefire, the Fed may still raise interest rates.

According to analysts at Bank of America Securities, even if the ceasefire in Iran continues, if energy prices do not quickly fall back to pre-war levels and WTI crude oil prices continue to hover above $80 per barrel, the Federal Reserve may still be inclined to take a more hawkish policy stance. Oil prices still difficult to fall quickly? A team led by Bank of America analyst Aditya Bhave believes that since the outbreak of the Iran war in late February, international oil prices have remained high, putting the Federal Reserve in a "hawkish" position. On Wednesday, the White House said that negotiations between the US and Iran "are still ongoing and fruitful," prompting President Trump to instruct the US Department of Defense to postpone strikes on Iran's power and energy infrastructure. With expectations that the situation in the Middle East may be resolved, international oil prices have significantly fallen. As a result, the settlement price for WTI May futures closed at $90.32 per barrel on Wednesday, down 2.2%; while Brent May crude oil futures settlement price closed at $102.22 per barrel, down 2.17%. However, many industry insiders are concerned that even if the Iran war ceasefire is reached, the oil and gas infrastructure in the Middle East has suffered significant damage and it remains difficult to quickly push oil prices back to pre-war levels in the short term before the war broke out, WTI oil prices were hovering around $65 per barrel. High oil prices will still prompt the Federal Reserve to raise interest rates Bank of America stated that if the average price of WTI crude oil continues to hover between $80 and $100 per barrel, a Fed rate hike is "the most likely scenario." After the outbreak of the Iran war, the passage through the Strait of Hormuz was effectively blocked. The strait is located in the southern part of Iran and is a vital route for about one-fifth of global oil transportation. This has caused energy prices to rise, and concerns about rising inflation pressures in countries worldwide have increased. In the US, gasoline prices at gas stations have risen significantly and may affect overall price increases in the coming months. A recent survey by S&P Global of commercial activities also found that more and more US companies are starting to cope with the significant rise in raw material costs. "There are multiple possible outcomes - for example, if the (oil price) shock continues but is moderate in magnitude - in this case, the Fed will become more hawkish, as it is more concerned about inflation issues," analysts at Bank of America said. "Although rate hikes are far from our base case, they are a risk factor that needs to be considered." Other possible outcomes? However, Bank of America analysts pointed out that the Federal Reserve may still face "multiple" different potential scenarios. For example, if the oil price shock is temporary and oil prices can quickly fall back, the initial spike in inflation will quickly dissipate as consumers reduce spending, putting pressure on gasoline demand. In addition, they also pointed out that if there is a sell-off in US stocks, leading to negative wealth effects, this would exacerbate downside risks in US employment - another key focus of the Federal Reserve - in which case, the Fed would take a more moderate stance. This article is reprinted from "Cai Lian She", author: Liu Rui; GMTEight Editor: Feng Qiuyi.