Are businesses passing on higher energy costs to their customers? These Fed minutes have the answer.

Summary

The article discusses the market's concern about the Fed's readiness to react to high inflation, implying potential implications for interest rates and economic activity. The Fed minutes may reveal whether businesses are passing on higher energy costs to customers, which could influence inflation expectations. This development has significant market implications, particularly for inflation-sensitive assets.

Market Impact

The news may lead to increased market volatility, particularly in inflation-sensitive assets such as TIPs and gold (XAU), as investors await the Fed's next move. A potential increase in interest rates could pressure equities, especially those with high debt levels, and strengthen the US dollar (USD).

Key Drivers

• Fed's inflation response
• interest rate expectations
• inflation pass-through from energy costs

Risks

• aggressive rate hikes could trigger a recession
• inflation expectations become unanchored

Time Horizon

Medium Term