6 Reasons The Fed Doesn't Care About Higher Oil Prices
1.) The Fed will be able to validate their statement that interest rates will remain low until 2014.
2.) The resulting U.S. GDP slump will give QE proponents ammunition to keep rates low by instituting further easing initiatives.
3.) The alternative energy policies pursued by the U.S government will gain wider acceptance when gas prices move to record levels.
4.) If Iran explodes, the Saudi's can step up supply and if the U.S goes to war it will boost U.S. economic growth. These developments should partially offset a U.S. recession triggered from higher oil.
5.) If U.S interest rates stay low, the Europeans can continue to offer competitive rates on debt instruments. The U.S. bond market won't be offering higher interest rates to lure away global capital. European bonds will look attractive when a 10 year U.S Treasury will pay less than 2% for the next few years.
6.) U.S equity markets will continue be attractive on a valuation basis compared to U.S bonds. Stocks should be able to outperform in a low rate environment as long as a geo-political solution to Iran is reached in a reasonable amount of time.