The fog of war is back. Oil prices jumped today after Israel attacked Iran’s largest gas processing facility. Iran’s Revolutionary Guard threatened to strike oil facilities in Saudi Arabia, the United Arab Emirates, and Qatar. Qatar then reported that Iranian missile strikes had damaged a key liquefied natural gas export facility.
Early this morning at 2:17 a.m. EST, the price of a barrel of Brent crude oil was around $100. It rose to about $110 by 2:00 pm, just as the FOMC announced that the federal funds rate would remain unchanged. Thirty minutes later, Fed Chair Jerome Powell started his press conference. He was neither hawkish nor dovish. The odds of two widely expected rate cuts this year declined, while the odds of a rate hike increased, according to the Atlanta Fed’s Market Probability Tracker. We remain in the none-and-done camp.
The S&P 500 fell 91.39 points today, with 57.42 points of that decline occurring after 2:00 pm, leaving the index slightly below its 200-day moving average (chart). The combination of war and Fed news triggered a taper tantrum in the stock market as investors concluded that monetary policy may be limited in its ability to address the war’s economic consequences. Indeed, Fed Chair Jerome Powell barely mentioned the war. Notably, he opined that the economy and labor markets are in good shape and that core inflation is likely to moderate in the coming months, implying the Fed will remain on pause for the foreseeable future.
In his presser, Powell did not mention that today’s February PPI report showed a 0.7% m/m increase, the third consecutive hotter-than-expected reading (chart). March’s PPI will be even hotter due to the war.
