Global oil prices rose sharply yesterday due to escalating geopolitical tensions between the United States (US), Israel and Iran.
President Donald Trump once again urged Federal Reserve (Fed) Chairman Jerome Powell to cut interest rates immediately.
In a post on the Truth Social platform, Trump stated that the Fed should cut interest rates immediately.
However, investors are concerned that high oil prices will add to inflationary pressures, thus preventing the Fed from cutting interest rates, at least until the end of this year.
Interest rate futures contracts now only expect one quarter-point interest rate cut by the end of the year, compared to two previous cuts.
This situation occurs despite former Fed Governor Kevin Warsh, who will take office in May, being seen as more inclined to cut interest rates.
Meanwhile, Iran's new Supreme Leader, Mojtaba Khamenei, has insisted on closing the Strait of Hormuz, a vital route that transports almost 20% of the world's oil supply.
This move will certainly threaten the global oil market. As a result, the price of West Texas Intermediate (WTI) crude oil surged to $95.70 per barrel.
Rising oil prices usually push up gasoline prices, putting pressure on the cost of food and other goods as transportation costs rise.
Analysts also predict food prices will rise because the Strait of Hormuz is a major shipping route for fertilizers around the world.
Goldman Sachs revised its forecast for the Personal Consumption Expenditures (PCE) Index from the Fed's target of 2% to 2.9% by December.
As a result, the timing of the Fed's interest rate cut has also been pushed back to September, from June.
Geopolitical conflicts and inflationary pressures are now weighing on the Fed, despite political pressure from Trump to cut interest rates immediately.
