BofA warns oil volatility could force c. banks to abandon look-through’ policy
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BofA warns oil volatility could force c. banks to abandon look-through’ policy Pranav Kashyap Sat, July 25, 2026 at 3:18 PM EDT 2 min read BAC CL=F CL Investing.com - Persistent oil price volatility caused by global shipping disruptions and geopolitical friction is threatening to entrench core inflation, creating a tough dilemma for major central banks, according to a report by Bank of America (BofA) Global Research. The Wall Street bank warned that standard monetary policy, which typically "looks through" short-term supply-side commodity shocks, may be inadequate after five years of above-target inflation. Downward-rigid prices in broader goods and services mean oil fluctuations can bleed permanently into core inflation metrics. BofA highlighted shifting rate paths across key central banks as volatile energy prices alter policy priorities: While BofA's base case projects the Federal Reserve will hold the federal funds rate steady at 3.50%–3.75% in July, a recent 10% jump in WTI crude oil has made the upcoming meeting an extremely close decision. With markets pricing in nearly 10 basis points of a hike for July, Federal Reserve Chair Warsh faces a strategic dilemma: holding rates steady risks undermining the Fed's credibility on inflation, while hiking contradicts his stated framework of ignoring supply shocks. BofA maintains its forecast of three 25-basis-point rate hikes in September, October, and December. The ECB kept interest rates unchanged, adopting a neutral posture as energy prices align closely with its baseline projections. BofA expects a second rate hike in September, with the balance of risks shifting toward a potential third hike if energy markets deteriorate further. However, the bank maintains high conviction that rate cuts will follow in 2027, bringing the deposit rate down to or below 2.0%. The Bank of England is expected to hold its Bank Rate at 3.75% in a 7-2 vote, as soft labor market conditions and muted wage growth have limited immediate second-round inflationary effects. Nonetheless, BofA noted that persistent energy price gains are tilting risks toward a hawkish stance. The RBI is expected to maintain a neutral hold at its next policy meeting. While immediate domestic growth looks resilient, the central bank must navigate new headwinds, including higher fuel costs and potential monsoon uncertainties, alongside rising U.S. interest rate expectations. BofA warns oil volatility could force c. banks to abandon look-through' policy Nvidia's new Alpamayo project: What it means for Tesla? This sector is 'poised for a big, beautiful year': Truist
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