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The geopolitical situation is heating up in the Middle East, and, unsurprisingly, this coincided with one of the biggest crude oil rallies in years. This comes just days after another cool inflation report that implied price increases weren’t a problem. 

But crude oil’s spike alters the situation. You see, nothing drives inflation more than rising prices in crude oil - and that goes well beyond what you pay at the pump to fill up your car.

And now, my concern is that the Fed missed its window of opportunity to lower rates while inflation was tame. 

Let me explain… 

Politics and Portfolios Don’t Mix

It’s kind of like oil and water. You can try to mix them, but eventually, they separate. It’s been several months since there’s been any hot inflation report, but the Fed has stayed put on the rate front since December because “tariffs cause inflation.”

Tariffs are a tax, and it’s funny when you think about it, because whenever “raising taxes” is proposed as a policy solution to economic problems, virtually nobody discusses it through the lens of inflation, because it’s not. But somehow, they’re magically inflationary because of tariffs.

This is the problem with ideological capture in the field of economics. Many people that work at the Fed have never managed money or experienced real risk in markets, but their careers are advanced for parroting whatever they’re told.

So, what comes next? Well, if war is coming, history suggests the Fed will lower rates at some point, but that’s not even my primary concern.

It’s that they’ll probably start cutting rates into a rising energy market, which is a recipe for an absolute inflation disaster. Then, they’ll be forced to pivot again at some point and try to contain inflation by raising rates. They really just created a mess for themselves.

Keep in mind that virtually every other major central bank around the world has already been easing. Once again, the Fed is behind the curve. 

This could easily send stocks soaring, so I’m not complaining there, but for the average person, rising inflation is a much bigger problem than soaring stock prices, and herein lies the problem.

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