All eyes are squarely on geopolitics as well as the market reaction.
Now the inverse relationship of equities and oil, all based on the tug of war of negotiations, as well as the progress and potential setbacks over the conflict in the Middle East.
And Fed funds futures remain in focus as global central banks do grapple with the prospect of higher for longer oil prices.
The national average.
For a gallon of regular gasoline in the US now stands right below $4 a barrel a gallon, and higher energy prices are also creeping into supply chains and could hit the bottom line.
Well joining me to weigh in at the New York Stock Exchange is Sarah Foster, an analyst at Bankrate.
Good morning, Sarah.
Great to have you back.
Good morning.
Thank you for having me.
Well, here we are this morning.
We are looking at US stocks down.
And we're looking at oil prices back up.
So tell me how all of this affects inflation when it comes to geopolitics.
It is certainly something that the Fed did not want to see.
It does not help them.
For the past 5 years they've been fighting this inflationary fire and then a supply shock has happened that really makes that 2% sustainable path towards better inflation difficult.
I would say we're really on the cusp of seeing $4 a gallon retail nationwide, and if you want to know what kind of effect that has on CPI, the headline inflation rate, that could of course push CPI up a full percentage point, which is the opposite direction that the Fed wants to see.
The Fed just a few months ago was in a situation where they were wondering when could they get back to cutting interest rates, and now the big question is whether they'll be able to at all. bring up an important point because central banks around the globe have a lot to contend with when it comes to inflation, and you also mention how this could creep in and it's not just American consumers or consumers around the globe that are worried about energy prices, it's corporations that are affected.
So when it comes to the central banks, how are you factoring this into the rate outlook moving forward?
In economics it's kind of a chicken or the egg debate whether this is a supply shock or a demand shock.
Oil, of course, starts out as a supply side issue that would tell the Fed they can't obviously drill for more oil.
They can't open up the Strait of Hormuz, but that maybe tells them to be patient.
However, since we've been in this situation where inflation has been uncomfortably high, above target for the past 5 years now.
Certainly compounds on the issue here.
What I think is going to happen is you're going to see hawks get more hawkish.
You're going to see doves get more dovish because the other side of the coin here is many households are feeling stretched financially long before we were saying $4 a gallon of gas.
Of course if that pulls back on consumer spending, if households start to adjust their budgets, that could be that demand shock that we've been worrying about.
And of course that's why you're saying.
Recessionary odds go up as the war in Iran has begun.
I think even for households too, we're wondering if the Fed, how that could impact them.
I think whispers of the Fed eventually having to raise rates, it's not our base case, and I think you've also seen expectations in the markets rebalance a little bit.
But certainly when you look at the interest rates that we track at bank rate, including mortgage rates, they're already creeping up whether the Fed has started to talk about rate hikes or not.
And another area that Americans are paying attention to is rates and borrowing costs.
I do want to get your take on what we're seeing in terms of housing and mortgage rates, 4 months ago we put out an interest rate forecast and we were kind of hoping this was the year that we might see some 6% mortgage rates.
Of course we saw that briefly for a moment 4 weeks ago.
Of course that was interrupted by the war in Iran over the past 4 months over the past 4 weeks.
We've seen mortgage rates creep up.
The latest data, the recent data that we have a bank rate, it's about 6.44%.
You want to know just how much that impacts households over the course of a year, the monthly payment of that higher mortgage rate translates to an extra $1000 for someone who were to buy a house now as opposed to when mortgage rates were briefly below 6%.
And that's a big deal for many households, and especially heading into that crucial spring home buying season as the housing market was really frozen.
It's probably going to take a little bit of air out of the room, but of course the importance is shopping around and making sure that you can get the best rate possible.
And speaking of shopping around, we know that inflation can creep into spending.
So when it comes to the economic outlook for the everyday American out there, what should they keep in mind?
It's difficult.
Shopping around often requires visiting multiple stores.
Of course that's not really an easy thing to be doing when gasoline is going up as fast as it is.
I think it's one of those times when it's crucial to look back at your budget, make sure.
You know what you're spending money on.
See if you can calculate your own personal inflation rate by going back and noticing which costs yourself have increased.
And then at that point it's time to start talking about substitutions.
The big fear about higher oil prices is that it could creep into other sectors, groceries, household utilities.
Of course we've been hearing from households for months now that food and home heating costs, electricity, those have all been going up.
And before I let you go, Sarah, it's hard to believe, but next week is April, and that means we'll start looking ahead to the labor employment report.
So what are your expectations as we count down to the upcoming non-farm payrolls?
We were all very taken aback by that February report.
The payrolls number was a lot weaker than expected.
I think there is some hope here that some of that was weather related and you could see a little bit of a bounce back that the labor market hasn't.
Taken a sharp a turn as it looked like it did a few weeks ago, but that all of course is going to depend on how the conflict lasts.
I hear from business owners, from employers, that it's very hard to plan for the future to know how to budget for wage increases, how to budget for more people on your staff, when you just don't know what the economy is going to look like a few months from now.
Well, Sarah, I appreciate your time.
Thank you so much for joining us and thank you so much for sharing all of your insights.
Thank you.
