Inflation risk from oil, Fed on hold (with Katie Greifeld, Romaine Bostick)

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Nathan Sheets 9.0

Inflation risk from oil, Fed on hold (with Katie Greifeld, Romaine Bostick)

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His entire analysis is predicated on the risk of 'durably elevated oil prices' providing an inflation shock, indicating he sees oil as elevated and a key near-term risk.

yields

For the next meeting or two, it's going to be really hard for the Fed to cut. If the Fed is on hold due to inflation risks from oil, it implies yields are not likely to fall in the near term.

14 calls

-1

no reliable edge (random outcomes)

1/28/2026 1:50:23 PM	medium term down	20 days later	-3.50%	+3.50%
1/21/2026 12:47:18 AM	medium term up	20 days later	-1.81%	-1.81%
12/8/2025 7:49:51 AM	short term down	6 days later	-0.10%	+0.10%
10/24/2025 8:04:31 PM	medium term cautious down	21 days later	+3.40%	-1.70%
9/11/2025 11:25:08 AM	short term cautious down	5 days later	+0.37%	-0.18%
9/4/2025 1:39:08 AM	short term down	5 days later	-1.32%	+1.32%
9/2/2025 9:41:20 PM	short term cautious down	5 days later	-3.92%	+1.96%
9/2/2025 8:40:30 PM	short term up	5 days later	-3.92%	-3.92%

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Asks what durably elevated oil prices mean for inflation and the US consumer.

Katie Greifeld
Nathan Sheets

Headline inflation could move up by half a percentage point to around 3% over next few months. Also a risk for core goods from tariffs and supply chain challenges.

Poses another risk for the economy, consumer, and Fed.
Asks what that means for the Fed lowering rates.

Katie Greifeld
Nathan Sheets

Fed's playbook is to watch and wait to see if inflation or growth effects dominate. For the next meeting or two, it will be really hard for the Fed to cut.

They will likely be watching and waiting through the first half of the year.
Asks if the weak jobs report argued for more accommodative Fed.

Romaine Bostick
Nathan Sheets

It's a softer, not collapsing, labor market. In absence of higher oil, the Fed would have debated a cut; it would have been a real option.

Some Fed members like Waller are more worried about the labor market.
Asks about Fed communication next week.

Romaine Bostick
Nathan Sheets

Powell must make clear the Fed is watching, waiting, and prepared to move. He might tip his hand a little toward needing a cut due to labor market concerns.

Now is a time for the Fed to be vigilant.
Asks how this sets up a potential Warsh-led Fed in May.

Katie Greifeld
Nathan Sheets

If the Fed doesn't cut in the next couple meetings due to oil, it opens the door for a Warsh-led Fed to cut later in the year, which wouldn't be seen as bad news.

Hypothetical scenario based on oil pressures abating in H2.
Asks about modeling a fiscal response.

Romaine Bostick
Nathan Sheets

Hesitant to think about more fiscal tools given high deficits and debt. Doesn't think we're at the threshold yet unless oil hits $120 for months.

Given debt levels, that's probably a good thing.
Asks about historical read-through of oil shocks to shoppers.

Katie Greifeld
Nathan Sheets

Higher oil price interacting with the K-shaped economy is very bad news for the lower part of the distribution.

A further shock to real incomes in that part is likely to be quite painful, implying downside for consumption and retail sales.

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