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Rising oil prices put Fed in tough spot amid inflation

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Rising oil prices put Fed in tough spot amid inflation

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Oil prices rose on Tuesday, setting up a challenging situation for the head of the Federal Reserve before Wednesday’s meeting, CNBC’s Jim Cramer said.

“The surging price of crude … makes life difficult for Fed Chief Jay Powell,” Cramer said on “Mad Money.” “Even as many other commodities have actually now fallen, and some falling precipitously in recent weeks, oil just keeps going higher.”

The comments come after the major averages all declined in Tuesday’s session ahead of the Fed’s monetary policy meeting. A Wall Street that’s keeping an eye on rising consumer prices will be watching closely as Powell is “tormented” with questions about inflation at the press conference, Cramer said.

Traders are watching for any sign that the Fed will change course on inflation and adjust tapering plans.

“Oil’s too powerful a negative for the press to ignore and I bet at some point he’ll say he’s monitoring it,” which means to sell, Cramer said.

Powell has said he’s willing to let inflation, which shot up 5% in May, run a little higher than past years before acting to hike interest rates. The Fed has said it wants to let the U.S. economy and job market fully recover from the Covid-19 downturn before tamping down on inflation, asserting that it will be transitory.

“Tomorrow when the Fed gives its statement at 2 p.m., I don’t expect much change in the language, but the stock market says that oil’s leadership is so obvious that crude will clearly keep heading higher, and that means the Fed has to change course,” Cramer said.

“The dirty little secret here is that higher interest rates won’t do anything to create more oil supply, but you’ll never hear that from the ‘inflationistas,'” he added.

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