2 Reasons Why Higher Oil Prices Are Good for Banks and 1 Reason They Are a Problem
The conflict in the Middle East is flaring again, leading to rising oil prices and an increased likelihood of higher interest rates.
Overview
It would be better for the world if there weren't a geopolitical conflict raging in the Middle East. But that doesn't change the fact that there is, and that tensions are again on the rise. One direct impact of the flare-up is higher oil prices, which may force the Federal Reserve to increase interest rates. And that would be good news for bank stocks, but only if rates don't have to rise too far. Here are two reasons why higher oil prices could be good for banks and one reason to worry about their impact on the economy.
Inflation has been running hotter than hoped. The main way the Federal Reserve combats inflation is to increase interest rates. That's the basic story, but a key part of the problem today is the higher oil prices resulting from the Middle East conflict. Oil prices had been coming down, but the latest escalation in the conflict has them rising again.
Image source: Bank of America.
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Originally published at www.fool.com.