Gate News reports that on March 10, Bank of America released a report stating that the market currently views rising oil prices as a greater inflation threat, but supply shocks actually pose risks to both sides of the Federal Reserve’s dual mandate. The report indicates that monetary policy will only tighten 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 notes that at that time, economic demand was significantly stronger (unemployment rate at 4%, core PCE inflation over 5%, non-farm payrolls increasing by 500,000 per month, and consumers still had substantial stimulus funds). Today, job growth is slower, inflation remains mildly elevated, and fiscal stimulus is more limited. The bank believes that if oil price shocks persist, it could create conditions for the Fed to adopt a more accommodative monetary policy.
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