Analyst: Rising oil prices may become a more structural driver of inflation
Analysts at First Abu Dhabi Bank stated in a report that the strength of oil prices has already become, and will continue to be (at least in the short term), a more structural driver of inflationary pressures. The analysts pointed out that inflationary pressures have led to a sell-off in interest rates as expectations for central bank rate cuts have faded. Previously, the market expected the Federal Reserve to cut rates two to three times this year, but those expectations have been ruled out.
LSEG data shows that the money market currently expects the U.S. policy rate to remain largely unchanged in 2026, with a very slight tightening bias. The market has even factored in a more hawkish rate hike scenario for the European Central Bank and the Bank of England by the end of this year, with increases of 74 basis points and 56 basis points, respectively, "which is largely a result of imported energy inflation from Europe."
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