Higher wholesale fuel prices were noticeably passed along to retail end users this week, causing service stations throughout the country to raise retail gas and diesel prices. Other commodities including; sugar, gold, and copper, continue to print new yearly highs on a daily basis. The Federal Open Market Committee will be carefully monitoring this rise in commodity inflation for signs higher costs are penetrating core inflation.
Speculators are not waiting for more inflation data analysis. The May contract for Fed's funds futures are pricing in an 85% probability that the FOMC will raise interest rates 50 points in April.
The Fed is unlikely to make any interest rate move during its November 2nd and 3rd meeting. However, energy investors will want to pay close attention to any change in previous rhetoric signalling a rise in interest rates will be a viable consideration.
The Fed will not make a move until improved employment data and rising core inflation give them the go ahead. Historically the Fed has never raised interest rates until total unemployment, currently at 9.8%, began to decline. Continued rising commodity prices likely will force their hand to raise rates in April.
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