Strait Of Hormuz Reopening Could ‘Overheat’ Economy And Inflation, Analyst Warns
Key takeaways
- “The energy shock is over,” but the “rate shock” isn’t, one economist warned.
- The new narrative “suggests that the reopening of the Strait of Hormuz will further overheat the economy, forcing the Fed to raise interest rates soon,” Slok argued.
- Brent Crude, the international oil benchmark, dropped 4.3% to below $74 as of Wednesday morning, its lowest level since before the Iran war.
Topline. The reopening of the Strait of Hormuz may further “overheat” the economy, potentially resulting in higher inflation and prompting the Federal Reserve to hike interest rates, Apollo’s chief economist warned Wednesday, as consumer prices rose at their highest rate in three years last month amid a surge in energy costs.
“The energy shock is over,” but the “rate shock” isn’t, one economist warned. Getty Images Key Facts Torsten Slok, Apollo’s chief economist, wrote in a note the “narrative in markets is changing” and that lower oil prices, once viewed as helping alleviate inflation, could increase demand in an “already overheating economy” and produce higher inflation, not lower.
Slok pointed to Consumer Price Index data for April—showing prices rose at a 3.8% annual rate before May’s data indicated costs rose 4.2%, the highest rate since April 2023—and May’s “hot” jobs report, which showed the U.S. added 172,000 nonfarm jobs through the month, as well as a “hawkish” Federal Reserve as driving forces for the narrative shift.