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Ever since the Fed announced its latest round of unprecedented QE to fight the pandemic in March, economists have been debating whether we can expect an extended period of inflation or deflation.
There are a lot of factors that fit into that equation. However, let’s look at one in particular that can have a major influence: crude oil.
There is an argument to be made that oil prices will be a strong driver of inflation over the next few years, despite government efforts to move to renewables.
The Fed-Crude Link
A recent report by US investment bank Raymond James highlighted how changes in oil prices correlate strongly with Fed policy.
Specifically, when the Fed cuts rates, the price of crude rises; and when the Fed trims back on quantitative easing, the price of crude falls. Why?
There are several factors that can explain the link. One is that businesses avail themselves of cheap credit to invest, and that pushes demand for energy.
Another is that with cheaper capital, it’s ...
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