Can the Federal Reserve ignore the impact of oil prices?

Investing.com - The latest U.S. data provides a clearer picture of the economic situation, but Barclays analyst Jonathan Miller admitted in a client report on Monday that rising oil prices currently pose the biggest risk to inflation outlook.

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Miller wrote that recent data “helped resolve many contradictions in our outlook,” with February employment data “actually reversing the unexpected upward trend in January,” and consumer spending still showing resilience despite a slowdown in growth.

Barclays still expects “a 25 basis point rate cut in June and December,” but warns that oil remains a major uncertainty.

The bank stated: “The situation in Iran remains unclear,” with risks “mainly centered on developments in the oil market.”

Miller wrote: “A 10% increase in oil prices could push overall inflation up by 0.2 percentage points within one to two months.”

Due to recent changes, the bank has raised its forecast for the December 2026 CPI by 0.4 percentage points to 2.7% year-over-year. If the conflict persists, risks will tilt further upward.

On the labor market front, Barclays downplayed the softness of the February jobs report. Although non-farm payrolls decreased by 92,000 and the unemployment rate rose to 4.4%, Barclays believes this “largely reflects a reversal of the positive factors in the January report.” The bank also noted that a strike causing 31,000 healthcare workers to stop work had an impact.

Barclays also stated that data still shows about 50,000 jobs added per month on average, and even moderate hiring would help lower the unemployment rate.

Upcoming retail sales data also shows stability. February retail control group sales increased by 0.3%, with auto sales rebounding, both “consistent with our outlook of a gradual slowdown in consumer spending.”

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