Bullish Gasoline Prices Concern for US Economy in Election Year

As rising gasoline prices filter down to consumers, this could increase the difficulty in reducing inflation to its target levels with services inflation still somewhat sticky, hindering plans to cut interest rates.

• The Fed still expects three 25bp rate cuts this year after keeping rates on hold yesterday (which the market mostly buys for now with ~80bp of cuts priced for 2024).
• With the US election just months away, The Biden administration will be keeping watch on gasoline prices – always a key talking point on the campaign trail.
• Gasoline prices have been steadily recovering, up by 30% since the start of the year.
• Support comes from a heavy refinery maintenance season in the US and ongoing drone attacks by Ukraine on Russian refineries.
• With summer driving season on the horizon, seasonally low US stocks, and little sign of Ukrainian drone attacks abating, the gasoline market looks likely to remain bullish.