'Will The Fed Ever Learn?' Market Strategist Warns Hiking Into Oil Shock Could Repeat 2008's Biggest Mistake
James Thorne, Chief Market Strategist at Wellington Altus, warned that a Kevin Warsh-led Federal Reserve could repeat one of the “most damaging” errors from the 2008 financial crisis by raising interest rates as oil prices surge, mistaking an energy-driven price spike for genuine economic overheating.
‘You Don’t Hike Into an Energy Supply Shock’
“Basic economics: you don’t hike into an Energy Supply Shock!!!” Thorne said in a post on X Monday.
He added that the real question is whether Warsh’s Fed will repeat the European Central Bank’s (ECB) mistake by “hiking into an energy supply shock and mistaking an externally imposed price surge for overheated demand.”
Thorne pointed to 2008, when then-Fed Chair Ben Bernanke warned that rising energy prices had “added to the upside risks to inflation and inflation expectations.” He argued that the Fed’s concern over rising inflation and inflation expectations led policymakers to remain focused on inflation risks even as higher energy prices were weakening household purchasing power and growth.
The ECB Is Already Repeating the Mistake, Says Thorne
Thorne said the ECB has already repeated its 2008 error, tightening policy into an energy-driven squeeze even as growth weakens.
The ECB raised its rate by 25 basis points to 2.25% in June, becoming the first major central bank to hike in response to inflation driven by the Iran war, and is widely expected to raise it again at its Sept. 10 meeting, with traders assigning a 99% probability of another 25-basis-point increase, according to ECB Watch.
Oil Prices On The Boil Again
Oil prices have surged over the past month, with U.S. West Texas Intermediate (WTI) crude soaring over 20% during this period, while Brent crude has gained over 18%.
At the time of writing, Brent crude futures jumped to $99.30 a barrel, up 2.37%, and WTI crude futures climbed to $94.57 a barrel, higher by 3.38%
Gasoline prices in the country hit a record $4.15 a gallon over Labor Day weekend.
A Familiar Warning From the Past
Thorne noted investors remember the Fed’s emergency cuts after Lehman Brothers collapsed, but said they forget the Fed was already positioning to tighten just as the ECB was hiking into the financial crisis.
He said today’s messaging from both the Fed and ECB echoes the same narrative heard right before the 2008 crisis, warning the Fed risks responding to an energy shock with tighter money and crushing demand just to prove it’s serious about inflation.
“Will the Fed ever learn?” Thorne asked. “We know the ECB hasn’t!”
Price Action: United States Brent Oil Fund (NYSE: BNO) closed 0.38% higher on Friday and gained 3.21% to $57.91 in early pre-market trading on Tuesday. ProShares Ultra Bloomberg Crude Oil (NYSE: UCO) closed 1.24% higher last week and climbed 4.12% on Tuesday. Meanwhile, United States Oil Fund (NYSE: USO) fell 0.091%, but gained 3.14% in pre-market trading.
Benzinga edge rankings indicate Brent Oil Fund has a Momentum score in the 91st percentile.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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