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LSEG: Why persistent oil prices could keep rates higher for longer

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LSEG: Why persistent oil prices could keep rates higher for longer

The world’s major central banks have shifted course in a matter of weeks, and according to analysis from LSEG Data & Analytics, the real danger for markets is not how far oil prices have climbed, but how long they stay elevated.

The Federal Reserve, European Central Bank and Bank of Japan have all lifted policy rates as they grapple with stubborn inflation, resilient economies and renewed uncertainty linked to the Middle East. LSEG Data & Analytics notes that higher energy prices are an external supply shock that monetary policy cannot reverse. Rate setters cannot pump more oil or resolve geopolitical conflict, but they can try to stop rising energy and transport costs from seeping into wages, broader prices and inflation expectations.

In the US, the Fed raised the federal funds target range by 25 basis points to 3.75-4.00% on 16 September. LSEG data shows headline CPI reached 3.4% year-on-year in August, with gasoline prices up 3.9% in the month alone. The labour market remains firm, with non-farm payrolls rising by 162,000 and unemployment steady at 4.1%. The Fed’s own projections put 2026 PCE inflation at 3.7% and core PCE at 3.4%, well above its 2% goal.

50%. 29 percentage points. LSEG Data & Analytics highlights the uncomfortable mix this creates: modest growth alongside inflation materially above target.



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