The great oil delusion: Energy shocks are just a shadow rate rise
From a macro perspective, the oil shock is another form of monetary tightening. This is why the recent repricing in interest rates may ultimately prove misguided.
Vimal Gor
Global markets have undergone a sharp and perhaps reflexive reassessment of the path for monetary policy. Only a few months ago, the consensus was clear – investors were confident that the US and Australia would begin a meaningful easing cycle in 2026 as inflation receded and labour markets softened.
That confidence has evaporated with startling speed. Futures markets that once priced in a sequence of interest rate cuts have largely scrubbed them from the slate. This shift reflects a growing conviction that surging oil prices, spurred by escalating tensions in the Middle East, will force central banks to keep policy tight to combat a new inflationary impulse.