More than 30 days soaring 35%! The average price of gasoline in the United States has returned to $4 after more than three years. Trump's midterm elections and the Fed's policy path face challenges.

Due to the Middle East war causing a surge in fuel costs, the average price of gasoline in the United States has risen to over $4 per gallon, breaking this level for the first time since August 2022. Data from the American Automobile Association (AAA) shows that the average retail price of regular unleaded gasoline in the United States rose to $4.018 per gallon on Monday. Since the military conflict between the United States, Israel, and Iran erupted on February 28, the average price of gasoline in the United States has surged by over $1 - the day before the US launched attacks against Iran, the average price of gasoline was $2.98 per gallon, representing a 35% increase. This increase is comparable to some of the most severe increases in the past 20 years, and the speed of this increase is even faster than the surge in oil prices caused by the initial outbreak of the Russia-Ukraine conflict in 2022. The rise in gasoline prices in the United States echoes increases in prices around the world since the outbreak of the Middle East war. For example, earlier this month, gasoline prices in Japan soared to historic highs. Sri Lanka and Thailand have also seen price surges in gasoline. Some places have experienced shortages of supply, for example, some gas stations in Australia have run out of fuel to sell. High oil prices pose a "roadblock" for Trump in the midterm elections Gasoline prices are one of the most direct indicators of inflation that US citizens perceive. Although prices are still lower than the historical peak of over $5 per gallon reached after the outbreak of the Russia-Ukraine conflict in 2022, the rapid rise in US gasoline prices is enough to alert the market. The rapid increase in gasoline prices not only undermines Trump's core political promise to suppress inflation but also casts a shadow over his economic agenda as the midterm elections approach. Analysts say that the continued rise in oil prices may have a negative impact on the Republican Party in the midterm elections in November, when the two parties will vie for control of Congress. Voters are already dissatisfied with the high cost of living and Trump's economic governance. In his State of the Union address last month, Trump touted falling gasoline prices and asserted that inflation was "plummeting." Now, the reversal in oil prices directly challenges this narrative logic. In this situation, the Trump administration is urgently evaluating various intervention tools to curb the rise in oil prices in response to the pressure of fulfilling its promise to lower living costs during the midterm elections. The White House has introduced a series of measures to try to lower oil prices. These measures include granting a 60-day waiver to the Jones Act, allowing ships flying foreign flags to transport fuel between US ports, and granting exemptions for the fifth consecutive year to waive volatile requirements for cheaper E15 gasoline in the summer. However, so far, these two measures have not effectively lowered fuel prices. A survey conducted from March 19 to 23 showed that about 61% of adults disapprove of Trump's handling of the economy. According to research by Ryan Kams and Neil Mayoni of the Stanford University Institute for Economic Policy Studies, even considering other economic impacts, a $1 increase in gasoline prices leads to a 4.5 point or greater decrease in the consumer confidence index surveyed by the University of Michigan. Kams, who served as an economist on the economic advisory committee in the Biden administration from 2021 to 2023, stated that this "roughly means that for every $1 increase in gasoline prices, people's perceptions of the economy will deteriorate by 5%." Fed policy path faces challenges, Powell's statement eases rate hike concerns In addition to political risks for Trump and the Republican Party in a midterm election year, the surge in gasoline prices presents a challenge for the Federal Reserve, which is seeking to control inflation while maintaining employment. Since the outbreak of the Middle East war, the crucial oil shipping route of the Strait of Hormuz has been virtually closed, leading to a significant increase in crude oil and fuel prices, with even more pronounced price increases in consumer-use finished products like gasoline and diesel. As the war shows no signs of easing, and with US President Trump threatening to destroy Iran's energy infrastructure if a peace agreement is not reached, oil prices remain high. On Monday, WTI crude oil futures closed above $100 per barrel for the first time since 2022. The significant increase in oil prices has heightened concerns in the market about a resurgence of inflation and consequently had led to expectations of a rate hike by the Federal Reserve this year. However, the market focus is now shifting towards concerns that the Middle East war may exacerbate economic slowdown, prompting traders to abandon bets on a rate hike by the Federal Reserve. Federal Reserve Chairman Powell stated in a speech at Harvard University on Monday that the central bank is almost powerless to deal with supply-side shocks (such as the surge in oil prices caused by the Middle East conflict). This statement has eased concerns in the market about the Federal Reserve being forced to tighten monetary policy to curb inflation, prompting traders to consider the possibility of a rate cut later this year, although the probability is still low. At the beginning of last week, the futures market had fully priced in a rate hike by the Federal Reserve before the end of the year. Until last Friday, the market still believed that the likelihood of a rate hike was very high. By Monday, however, market sentiment had quickly reversed, with traders at one point believing there was a 20% chance of a rate cut before the December meeting. The sudden reversal in market sentiment also led to a drop of over 10 basis points in short-term US Treasury yields on Monday. Gennadiy Goldberg, head of US rate strategy at TD Securities, said, "There is uncertainty in the market about how to respond to recent geopolitical events - whether to focus on the first-level inflation shock or the second-level economic growth shock. Not only is the geopolitical outlook unclear, but the market also lacks confidence in how the Federal Reserve will deal with these scenarios." Jeffrey Sherman, Deputy Chief Investment Officer of DoubleLine Capital, a major asset manager on Wall Street, recently stated that policymakers at the Federal Reserve should avoid an overly aggressive response to the new round of inflation driven by oil prices and should continue to focus on the already weak labor market conditions in their monetary policy. In an interview with the media, he said that the impact of the sharp increase in international oil prices itself is equivalent to a form of monetary policy tightening, so the Federal Reserve may not need to take additional measures. Goldman Sachs strategist Dominic Wilson elaborated on a similar point in a research note - the market has overreacted to the oil shock and thus bet on the Federal Reserve tightening policy, but based on historical experience, this situation is unlikely to occur. Goldman's judgment is based on a similar situation in 1990 when faced with an oil supply shock, bond yields skyrocketed, investors bet on the Federal Reserve tightening policy, but ultimately the Federal Reserve went against that and chose to cut interest rates amid deteriorating economic conditions.