Fed's Daly: If oil prices come back down, a rate cut is not out of the question

San Francisco Fed President Mary Daly suggested that a decline in oil prices could open the door to potential rate cuts, implying that energy-driven inflation pressures remain a key consideration for monetary policy. The transmission mechanism centers on inflation repricing, as lower oil prices reduce headline CPI and alleviate concerns about sticky inflation, thereby increasing the Fed's flexibility to ease policy. This dynamic particularly impacts Treasury yields and the USD, with oil-sensitive currencies like the CAD also vulnerable to shifts in energy-linked growth and inflation expectations. The immediate focus will be on the next CPI report, especially the core goods and energy components, which could reinforce or undermine the case for rate cuts in the near term.

Crude oil (WTI/Brent) reacts in real time to OPEC+ production decisions, EIA weekly inventory reports, geopolitical supply disruptions (Middle East, Russia, Venezuela) and US Strategic Petroleum Reserve announcements. A 5% intraday move on breaking news is not unusual.

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