#oil

Although the Fed generally focuses on Core PCE/CPI data that excludes energy and food, if oil remains at these levels, it will inevitably seep into the entire supply chain. A sharp and rapid move higher in oil first pushes headline inflation up.
When companies pass these rising input costs on to the final consumer, a lasting stickiness can form in services and goods inflation.
The Fed's biggest nightmare is for long term inflation expectations to become unanchored. Consumers generally shape their inflation expectations according to prices at the gas pump. When expectations deteriorate, workers begin demanding higher wages, and this triggers the famous wage price spiral, forcing the Fed to keep rates high for much longer than it planned.
The Fed will look less at the increase the oil shock creates in the headline and more at whether it spreads into the medium term. In other words, the question is not just did oil rise? but is this increase seeping into the core, wages, services, and expectations?
On the 2-5 year expectations side, there is no deterioration right now. But that doesn't mean there will not be. For this rise in oil to remain a spike, the U.S.-Iran tension needs to reach a resolution.
And the biggest risk would be this: at the same time, inflation goes up while growth goes down. In other words, classic stagflation pressure forms.