Financial Markets, Oil Prices, and Supply-Side Risks

Federal Reserve Bank

Research

2 Pages

Financial market pricing now indicates that elevated oil prices and potential inflation are prominent sources of risk.

Key Takeaways

Stock bond correlation flips: The relationship between equity valuations and bond yields recently turned negative after 20 positive years.
Energy uncertainty correlation shifts: Oil volatility now correlates positively with rising prices compared to previous negative readings around 2020.
Interest rate boundary limits: Central banks avoiding policy rates below 0% historically created insufficient monetary stimulus during severe crises.
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