Dallas Fed study sees oil at $167 and stagflation risk with $5 gasoline
Dallas Fed study projects a three-quarter Strait of Hormuz closure could drive oil to $167 per barrel and add to 1.8 percentage points to Q4 inflation, lifting headline inflation above 4%. Chicago Fed President Goolsbee warns this oil shock could trigger stagflation and push U.S. gasoline to $5 per gallon.
1. Dallas Fed Hormuz Closure Impact
The Dallas Fed working paper evaluated one-quarter and three-quarter closures of the Strait of Hormuz, which handles 20% of global oil trade. A one-quarter closure would spike March inflation by 5.2 annualized percentage points, fading to a 0.35 point Q4 lift, while a three-quarter closure would push oil to $167 and add 1.8 points to Q4 inflation.
2. Chicago Fed Goolsbee’s Stagflation Concern
Chicago Fed President Austan Goolsbee cautioned that higher oil prices represent a stagflationary shock lacking a clear policy playbook. He noted U.S. gasoline could reach $5 per gallon, warning prolonged inflation might become embedded and complicate Fed decisions.
3. Declining U.S. Oil Shock Sensitivity
Analysts at Bank of America highlight that U.S. growth and inflation are now one-third as sensitive to oil shocks as in the 1970s. A 10% oil price jump today adds about 25 basis points to U.S. inflation versus 90 basis points four decades ago, reflecting reduced oil dependence and improved resilience.