Bank of America: Rising Oil Prices May Drive Interest Rates Significantly Higher

Bank of America Securities noted in a research report that if crude oil and refined product prices rise further in the next three to six months, it could lead to a significant increase in interest rates. The U.S. two-year nominal interest rate swap has risen by 113 basis points year-to-date. On days when oil prices increased, this rate rose a cumulative 196 basis points, while on other trading days, it fell a cumulative 83 basis points. The volatility of interest rates in the UK and Germany is even more pronounced. Bank of America believes that if energy inflation rises, the constraints on the Federal Reserve when considering interest rate hikes may be lessened, as the U.S. economy shows resilience in growth and consumption, and the labor market remains relatively tight.

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