Bank of America: If the oil price shock continues, it may pave the way for the Federal Reserve's easing policy
According to Jinshi News, Bank of America stated in a report that the market currently views rising oil prices as a greater inflation threat, but supply shocks actually pose risks to both aspects of the Federal Reserve's dual mandate.
The report pointed out that monetary policy tends to tighten only 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 noted that economic demand was significantly stronger at that time (with an unemployment rate of 4%, core PCE inflation exceeding 5%, non-farm employment increasing by 500,000 per month, and consumers still holding a large amount of stimulus funds). Today, job growth is slower, inflation is at a moderately high level, and fiscal stimulus is more limited. The bank believes that if the oil price shock persists, it will create conditions for the Fed to implement a more accommodative monetary policy.
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