Renowned economist Peter Schiff (as stated) said during an interview with Fox that, influenced by geopolitical tensions and the Federal Reserve’s monetary policy, energy prices will continue to rise, exacerbating inflationary pressures. Against the backdrop of persistently high costs in the global supply chain, the risk of a potential recession in the U.S. economy has not been ruled out.
Energy prices remain high, increasing the operating burden on businesses.
Sheff, in his capacity as a global strategist for Euro Pacific Asset Management, offered a critique. He believes that the rise in oil prices is essentially a disguised tax on the overall economy, and that the related crisis has not yet ended. He asserts that oil prices will increase sharply from now on—not only oil, but all energy-related commodities and services as well, especially diesel. This will have particularly severe negative effects because diesel is a major fuel for agriculture and transportation. All trucks use diesel, which will affect the prices of almost all goods.
Because diesel is a core fuel for agriculture and logistics transportation, fluctuations in its price quickly spread to all kinds of goods and services. Data from AAA (the American Automobile Association) shows that the average U.S. diesel price hit a new high of $6.5276 per gallon. Even if geopolitical tensions ease temporarily, supply chains still have to bear a long-term risk premium, making it difficult for energy costs to fall significantly.
The Fed’s monetary policy lags, exacerbating inflation pressure
Besides geopolitical factors, the Fed’s delayed response is also a main reason for rising prices. Schiff believes that the previous rate-hike measure of 0.25% had limited effect and was unable to effectively curb the spread of inflation. In addition, the U.S. government’s use of SPR (Strategic Petroleum Reserve) to lower oil prices is unlikely to be sustainable. EIA (U.S. Energy Information Administration) data indicates that U.S. crude oil inventories have dropped sharply from more than 400 million barrels to above 284 million barrels. If replenishment of inventories resumes in the future, it will create additional upward pressure on international oil prices.
A rate-cut decision may trigger secondary inflation
With rising unemployment and slowing consumer spending, the market expects economic growth to cool. If the Fed chooses to pause rate hikes or even restart rate cuts and quantitative easing due to economic weakness, it could lead to a renewed surge of market liquidity, further driving up consumer prices and energy costs. Although the White House emphasizes that it will lower fuel costs by expanding refinery capacity, the systemic risks facing global supply chains and the monetary system still make the economic outlook highly uncertain.
Key points summary notes
Rising diesel costs lift overall prices: the average U.S. diesel price reached a new high of $6.5276 per gallon. Diesel and prices for various energy commodities have stayed high, directly raising logistics and agricultural costs and imposing a real economic burden.
Limited release of strategic reserves: U.S. SPR (Strategic Petroleum Reserve) stockpiles have fallen sharply. Future inventory replenishment demand will create additional upward pressure on oil prices.
The monetary policy faces a dilemma: if the Fed’s response is too slow, and it chooses to cut rates again to ease an economic recession, it could trigger severe inflation.
Geopolitical risk premium: even if the U.S.-Iran conflict reaches a short-term ceasefire agreement, supply-chain uncertainty will still be reflected in energy prices for the long term.
In this article, Peter Schiff argues that rising diesel prices and their ongoing increase in burdens on businesses mean that the risk of an economic recession has not been resolved yet—first appearing earliest on the news chain ABMedia.