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The Changing Sensitivity of Interest Rates to Oil Supply News

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A decrease in oil supply drives up oil prices, which can raise unemployment and inflation. To counter adverse effects on inflation, a central bank may choose to increase its policy rate, potentially reducing economic activity further. Changing interest rates can thus shape how unexpected oil price changes affect the economy. In recent years, interest rates have become more sensitive to unexpected oil supply news. However, market-based long-term U.S. inflation expectations did not shift significantly in response to oil supply news, suggesting that the public’s inflation expectations remain well anchored.

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  • Wataru Miyamoto & Rami Najjar & Thuy Lan Nguyen & Dmitry Sergeyev, 2025. "The Changing Sensitivity of Interest Rates to Oil Supply News," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2025(30), pages 1-5, December.
    • Handle: RePEc:fip:fedfel:102220
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