I just reviewed the March non-farm payroll data, and honestly, it’s surprising on the upside. The U.S. labor market continues to show considerable resilience, but here’s the interesting part: while everyone celebrates the employment numbers, what’s really moving the waters is the situation in the Middle East.

The blockade of the Strait of Hormuz has created a serious gap in oil supply, and that is directly reflected in oil prices. And when oil prices rise, inflation expectations also increase. That’s what’s currently concerning. Inflation has become the central variable for understanding where the Fed’s monetary policy is headed.

The curious thing is that the Fed has some room to maneuver thanks to its dual goals of employment and inflation. Technically, it doesn’t need to raise rates immediately to combat inflation, but here’s the key point: even if the Fed keeps rates where they are, if inflation expectations continue to rise, the Treasury yield curve could shift upward on its own. And that, in practice, means a tightening of monetary conditions anyway.

So, monetary policy is more about expectations than explicit decisions. An interesting dynamic to monitor in the coming weeks.