Interest rates could go ‘significantly higher’ if oil prices keep climbing — even if the Iran war ends soon

Interest rates could go ‘significantly higher’ if oil prices keep climbing — even if the Iran war ends soon Interest rates could go ‘significantly higher’ if oil prices keep climbing — even if the Iran war ends soon Strategists at Bank of America said even if the war in Iran settles or reaches an end, there is no certainty that output will resume to its previous level. If oil prices keep climbing in the near term, interest rates could move “significantly higher,” according to Bank of America — even if the Iran war is resolved. Ralph Axel and Oliver Levingston, strategists at the investment bank, found that rates and oil have been dramatically correlated in the past few decades in the U.S., U.K. and Germany.

On other days, it fell by 83 basis points. In the U.K. and Germany, it has generally been starker. Your daily dive into MarketWatch, featuring story spotlights, market movers and more you Need To Know to start your day.

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The strategists said the sequence of events usually looks like spiking energy prices leading to higher yields on bonds as investors demand greater compensation, which results in central bank governors entering meetings with increased projections of hikes — eventually deciding to deliver on those expectations. The Federal Reserve would likely face fewer challenges than other central banks if it enters a cycle of tightening monetary policy because of robust consumer spending, stronger-than-expected gross domestic product growth and a resilient labor market in the U.S. For the bank, despite oil futures now significantly lower than before Tuesday’s midterm elections as markets increasingly price in the war in Iran ending sooner rather than later, additional rises in oil prices cannot be ruled out, especially if the conflicts in the Middle East or Ukraine intensify.

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