Fed on High Alert as Oil Prices Surge

The US Federal Reserve is on high alert as oil prices surge, putting pressure on inflation risks. Nearly 90% of traders expect the Fed to raise interest rates by 25 basis points this week, ending a nine-month holding pattern, according to CME Group data.

Oil prices jumped nearly 8% last week due to escalating tension in the Gulf, including Yemen's Houthi rebels seizing the port city of Mokha on the Red Sea. Brent crude settled at $104.50 per barrel on Friday before Saudi Arabia's Energy Ministry announced it had shut down the East-West Pipeline after sustaining several attacks.

The pipeline's closure could mark a defining moment in the six-month conflict, and tanker traffic in the Strait of Hormuz remains significantly below pre-conflict levels. Price pressures have eased in recent months, but Fed Chairman Kevin Warsh must decide how confident he is that inflation is moving towards the central bank's 2% target.