WTI Oil Price Sets the Stage for Next Fed Move

The recent surge in oil prices is now driving Federal Reserve policy more than any statement from Chairman Kevin Warsh. Brent crude touched above $95 a barrel this week, and its swings are dictating inflation readings. Energy costs ripple through various sectors, making them the primary driver of inflation since the war began.

When a brief ceasefire took hold, oil prices tumbled, and the relief showed up in core CPI and core PPI data. However, with tensions flaring anew, energy prices are rising again, putting pressure on inflation readings.

The Fed now has enough cover to hold rates steady rather than resume hiking for the time being. This is a far better outcome than investors were pricing in a few months ago, although rates remain elevated.

Investors should track West Texas Intermediate crude, as it drives U.S. economic outcomes more directly than Brent. WTI currently sits at $86.25 a barrel and is the key variable standing between investors and a clearer rate picture.