The Federal Reserve might raise interest rates because oil costs more now. Investors looked at a chart. Then they looked at a different chart. Then they decided Jerome Powell would have to press the button that makes mortgages expensive.
This is technical analysis at its finest. Oil rips higher—their word, not mine—so the Fed must hike. The correlation is airtight. When one line goes up, the other line also goes up. Sometimes. Or down. Depends on the month and who you ask and whether Mercury is in retrograde.
Retail traders are now pricing in a September rate hike with the same confidence they had shorting GameStop at $40. They've studied the relationship between crude oil futures and monetary policy for nearly fifteen minutes. They understand the transmission mechanism. Oil goes brrrr, inflation goes brrrr, Powell goes hmmmm, rates go up. Economics is simple when you ignore everything that makes it complicated.
The beauty of this headline is watching people connect two things that may or may not be connected depending on fifteen variables nobody can measure. Oil prices surge for reasons that include but are not limited to: OPEC production cuts, refinery capacity, geopolitical tensions, seasonal demand, speculative positioning, and a guy in Houston who sneezed near a Bloomberg terminal.
But sure. The Fed will definitely hike because of it. Not because of employment data or wage growth or credit conditions or any of the seventy-three other inputs they pretend to care about. Just oil. The line went up. Therefore the other line must also go up. This is the kind of monocausal thinking that makes day traders feel like they've cracked the code right before they lose their rent money on 0DTE options.
The odds have surged, apparently. Surged from what to what, the article doesn't say, but it feels urgent and that's what matters. Somewhere a retail trader is leveraging his entire Robinhood account on this insight, convinced he's finally ahead of the market instead of being the exact reason the market exists.
Photo by Giorgio Trovato on Unsplash
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