Bank of America: Continued oil price shocks may pave the way for Federal Reserve easing policies

Odaily Planet Daily reports that U.S. banks state in their report that the market currently views rising oil prices as a greater inflation threat, but supply shocks actually pose risks to both sides of the Federal Reserve’s dual mandate. The report points out that monetary policy will only tighten when consumer demand is strong enough and economic activity can withstand supply shocks, allowing the Fed to focus on inflation as it did during the Russia-Ukraine conflict in 2022. However, the bank notes that at that time, economic demand was significantly stronger (unemployment rate at 4%, core PCE inflation over 5%, non-farm employment increasing by 500,000 per month, and consumers still holding substantial stimulus funds). Today, job growth is slower, inflation remains mildly elevated, and fiscal stimulus is more limited. The bank believes that if oil price shocks persist, it will create conditions for the Fed to adopt a more accommodative monetary policy. (Jin10)