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<Research>BofAS Warns Energy Shock May Not Imply Hawkish Stance by Fed, Suggests Risk of Substantial Rate Cuts Also Rising
Aditya Bhave, an economist at BofA Securities, warned that investors betting on the Fed adopting a hawkish stance in response to rising oil prices may misunderstand the Fed's p...
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<Research>BofAS Warns Energy Shock May Not Imply Hawkish Stance by Fed, Suggests Risk of Substantial Rate Cuts Also Rising
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Aditya Bhave, an economist at BofA Securities, warned that investors betting on the Fed adopting a hawkish stance in response to rising oil prices may misunderstand the Fed's position, as supply shocks could also lead to stable or even severely reduced interest rates.

An energy shock doesn't necessarily imply a hawkish stance, as it may create a conflict between the central bank's dual mandate of price stability and employment support, Bhave stressed. The risk of maintaining unchanged rates long-term increases, with a tail risk of rate hikes, but the risk of significant rate cuts is even greater.

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If the oil shock persists, Bhave believes that the current weak labor market, moderate inflation rise, and limited fiscal support will prompt the Fed to adopt more dovish policies.

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