New York Fed President John Williams has warned of a potential supply shock to the U.S. economy stemming from the Middle East conflict. The market is pricing in a significant chance of elevated oil prices, with crude oil futures for delivery by June 30 trading at a 75% probability of reaching $90. This expectation is driven by the potential for prolonged closure of the Strait of Hormuz and recent attacks on energy facilities.
Williams’ remarks suggest a decreased likelihood of an interest rate cut by the Federal Reserve in April. Rising energy prices are expected to increase inflationary pressures, potentially prompting a more hawkish stance from the Fed. Traders are advised to monitor oil inventories and announcements from OPEC+ and the EIA for further market signals.
Watching developments in ongoing US-Iran peace talks could also provide insight into future market movements.