Bank of America: Sustained Oil Price Shock Could Pave the Way for Fed's Easing Policy

Odaily News According to a report from Bank of America, the market currently views rising oil prices as a greater inflation threat, but supply shocks actually pose risks to both aspects of the Fed's dual mandate simultaneously. The report notes 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 points out that at that time, economic demand was significantly stronger (unemployment at 4%, core PCE inflation exceeding 5%, non-farm payrolls adding 500,000 per month, and consumers still holding substantial stimulus funds). Today, job growth is slower, inflation is at a moderately elevated level, and fiscal stimulus is more limited. The bank believes that if the oil price shock persists, it could create conditions for the Fed to implement a more accommodative monetary policy. (Jin10)