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Rising US interest rates, sky-high oil prices, soaring inflation, a foreign war. Then, naturally, a recession.
The trajectory may sound awfully familiar, but I’m not describing the present-day American economy. Instead, this is what the US looked like in early 1990. The commodity market now fears a repetition — with another cycle of rising interest rates, expensive oil and a disruptive military conflict leading to an economic slowdown.
Macro hedge funds are already betting that oil demand will crash and prices will drop. Yet the bears may be catastrophizing the true impact of a recession. A review of how oil demand responded to a cooling American economy three decades ago can explain why an economic slowdown today might not be too terrible, and how oil prices can stay higher than many expect.
Back then, the Federal Reserve spent several months tightening its monetary policy, raising…