Higher Oil Prices Impact Rate Cute Expectations
Oil prices rose in the first quarter as geopolitical tensions escalated. In January, crude oil surged 14% amid supply concerns following the U.S. arrest of Venezuela’s former president, Nicolás Maduro, and mounting tensions in the Middle East. Prices rose again in February as geopolitical tensions continued to build, followed by a sharp escalation in March. The U.S.-Iran conflict and the closure of the Strait of Hormuz - a chokepoint for roughly 20% of global oil flows – coincided with a 51% spike in oil prices in the month of March. Overall, oil prices rose 77% in the first quarter. Figure 1 shows oil trading at its highest level since mid-2022:
The rise in oil prices complicates matters for the Federal Reserve in setting monetary policy. The Fed’s core mission, known as its “dual mandate”, is to promote maximum employment and stable prices. While unemployment remained low at 4.3% in March, there were signs of a softening labor market, including monthly swings in U.S. Nonfarm Payrolls (month-over-month). At the start of 2026, expectations were for the Federal Reserve to cut rates two to three times by year end. However, inflation remained above the Fed's 2% target across multiple measures leading up the to the Fed’s March 2026 meeting. Oil prices and the uncertainty of the war in Iran have further stoked inflationary fears and even the possibility of a rate hike. As a result, the Fed left short term interest rates unchanged after their policy meeting in March.
---
All content is for informational purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Past performance is no guarantee of future results. Purchases are subject to suitability. This requires a review of an investor’s objectives, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital. Opinions expressed herein are solely those of Darrell Capital Management, LLC. The information has been derived from sources believed to be reliable but is not guaranteed as to the accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your financial, tax and legal advisors prior to implementation. The information contained herein should be in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any state other than the State of California or where otherwise legally permitted. Advisory services are offered by Darrell Capital Management, LLC, an Investment Advisor in the State of California. Being registered as an investment advisor does not imply a certain level of skill or training. Social post reactions and comments should not be viewed as endorsements or testimonials.