The US Federal Reserve (Fed) has previously signaled that it will maintain interest rates close to zero by at least 2023 to help the economic recovery, as well as continue to buy large-scale bonds until it sees progress towards job and inflation targets. .
However, the current rise in crude oil prices, which have returned to normal levels before the coronavirus pandemic began, could cause the Fed to change its stance on current monetary policy.
This is because, usually the increase in crude oil prices will lead to higher expectations of inflation.
In fact, with the current situation where the Organization of the Petroleum Exporting Countries (OPEC) is reducing production and reopening the economy due to the increased prospect of vaccine launches will drive oil demand soar higher.
Previously, the central bank had set changes to the inflation target which provided more flexibility and allowed the Fed to maintain lower interest rates for the long term to stimulate growth to help overcome unemployment.
It also means that Fed policy makers in the future are unlikely to raise interest rates even as inflation grows above the 2% target.
The question is, to what extent will the Fed allow its inflation rate to rise?
