Oxford Economic Research Institute: Continuous rise in oil prices may lead to the Federal Reserve adopting a more dovish stance.

Ryan Sweet, Chief US Economist at the Oxford Economics Research Institute, wrote in a recent report to clients: "The sustained rise in oil prices may lead the Federal Reserve to adopt a more dovish tone." He believes that persistent oil shocks could weaken demand and potentially spill over into the previously resilient labor market. This is because historically, sudden spikes in oil prices tend to only result in temporary inflation increases, which the Fed typically overlooks. However, given the softening economy, the ongoing surge in oil prices may pose a greater threat to growth and employment than inflation itself. "The economy has already slowed down and is susceptible to any other negative factors, including sudden and sustained increases in oil prices," Sweet said. "If the Fed believes that the impact of oil prices on the economy and labor market outweighs the temporary boost to inflation, then the Fed may signal its willingness to cut rates earlier." Sweet pointed out that it may take several weeks for the market to have a clearer understanding of the direction of oil prices. His baseline forecast is that the Fed will make its first rate cut in December.