Energy Quantamentals: Oil and the Macroeconomic Feedback Loops

This new Energy Comment from our Energy Quantamentals series sheds some light on the complex relationship between oil and key macro-economic factors, including inflation, interest rate and the U.S. dollar. This is particularly important in the current environment when market participants are trying to position themselves either for interest rate cuts or, alternatively, for interest rates staying elevated for much longer. Specifically, what does it mean for the oil market, and can the price of oil itself impact the highly anticipated monetary policy decision? The article analyses the relationship between oil and inflation in terms of their causal links and evolution, presents an example of mutual causality between oil and inflation in a complex dynamic system such as the oil market to illustrate two types of feedback loops operating in such systems and concludes by discussing what does it all mean for oil markets today.

By: Ilia Bouchouev