As oil prices become unpredictable, experts are warning against further rate hikes due to the prolonged downward trend in bonds.

Financial experts are expressing concern about the bond market, suggesting that interest rates are likely to reach even higher levels than they are currently due to the strong resilience of the economy. Jim Bianco, president of Bianco Research, and Mohamed El-Erian, president of Queens’ College, Cambridge, discussed the potential inflationary impact on the Federal Reserve’s policy. They highlighted the significant rise in oil prices over the past few months, with the WTI-graded oil rallying by 30% since late June. Both experts focused on the risk of inflation resurfacing and drew parallels with the inflationary period in the 1970s. Bianco predicts that the Fed will refrain from taking action at the upcoming FOMC meeting on September 20 but anticipates a rate hike in November. He believes that the bond market has entered a multi-year bear market, with interest rates not expected to return to their pre-pandemic levels anytime soon. Bianco also forecasts an additional rate hike in early 2024 and dismisses the possibility of rate cuts, suggesting they would only be considered in the event of a severe recession. He highlights the contrasting economic landscapes of the US and China, with the US experiencing exceptional post-pandemic growth while China is in a different phase of its economic cycle. El-Erian warns that if the critical 4.35% resistance is breached, it could lead to a cascading effect and push the 10-year Treasury yield to a potentially unsettling 4.75%.