Inflation Watch: Oil Still Rising
Posted by Noah Rosenblatt on March 3, 2006 at 9.35 AM
A: The price of Light Sweet Crude surpassed the $63/Barrel mark as oil prices rose for the fourth straight day on nagging geopolitical supply concerns. Fears of more violent attacks in Nigeria and Int'l tensions over Iran's nuclear plan are two forces contributing to oil's most recent bull run.
I just feel a need to report on these things because the rising price of energy is an inflation leading indicator that new fed chief Bernanke must keep an eye on and combat by tightening monetary policy. In lay terms, this means interest rates would be raised to combat future inflation.
When scrutinizing the Iran nuclear situation more closely, the article points out:
The International Atomic Energy Agency's (IAEA) 35-nation board of governors will convene Monday to study a report saying essentially that Iran has ignored a Feb. 4 call to re-suspend enrichment work. Referring the issue to the U.N. Security Council moves Iran a step closer to possible sanctions, which oil traders fear could prompt the world's fourth largest oil exporter to cut supplies.Should this occur, the supply of oil will be disrupted once again (for how long or by how much is still unclear), leading to more supply issues and higher oil prices. Not a good sign if you were hoping that interest rates were close to their highs with no more rate hikes in the works.
UrbanDigs Interest Rate Opinion: You know how I love to predict things; just don't plan your whole life around these opinions! I am probably about 85 - 15 in favor of a 1/4 point rate hike at the next fed meeting, and about 50 - 50 for a second 1/4 point rate hike at the meeting after that. If both meetings yield a 1/4 hike (so 1/2 in total or 50 basis points), expect mortgage rates to rise to the mid-upper 6's for 30 YR fixed and possibly higher. Housing markets should remain flat to down in this scenario with more speculative markets possibly getting hit harder and faster. I will report more on this as news develops.
~ Supply Threats Push Oil Nearer To $64
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