“The Federal Reserve may have just raised interest rates in order to cut them,” wrote Hugh Hendry on Friday.
The iconoclast former hedge fund manager argued that “oil is the complication because it attacks from both directions." It raises the headline price level in a way that’s easy for all to see, while at the same time removing spending power from the economy.
“The Warsh mandate makes [the rate hike] legitimate,” he continued. The result, however, “is a monetary brake applied on top of an energy tax, with both forces pressing on the same household.”
The “gun fires backwards,” said Hendry, as the rate hike is aimed at inflation, but lands on demand that the higher oil price is already squeezing.
“It bought Warsh permission to cut without appearing to be captured by the White House … The weapon aimed at inflation would have produced the conditions for lower rates, and the recoil becomes the policy.”
Iran has submitted terms to the U.S. via Qatar-based mediators for reopening the Strait of Hormuz, Axios reports.
CBS, meanwhile, reports that talks between Iran and the U.S. have entered a “technical phase” following initial diplomatic contacts. “Sources in Tehran [describe] the atmosphere as increasingly positive.”
Investors have surely lost count of the number of “peace in our time” headlines over the past few months, but are nevertheless reacting quickly.
The price of WTI crude oil has tumbled more than $2 per barrel in the past few minutes, now lower by 3% for the day at $91.74.
Stocks have moved to session highs, the Nasdaq up 0.7%. Bitcoin has reclaimed the $84,000 level.
The 10-year U.S. Treasury yield has dipped five basis points to 5.16%.
“Does the Fed ever consider a 50 basis point rate hike,” asked macro analyst Ben Cowen on Friday. “The long end is getting away from them.”
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