Sectoral shift in US job openings

Meteoric rise in AI-related semiconductor exports fueling South Korea's export boom

Regional Fed surveys showing further manufacturing acceleration in August

Sharp drop in China demand for oil helping to limit impact of Middle East conflict on the price

Decades high real price of copper posing physical challenge to investment boom

Rising US long-term real yields point to strong demand for investment funding

US retail sales accelerate even as consumers remain gloomy

Retail gasoline price still well above pre-conflict level and now rising again

PMIs showing widespread revival of global economy

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

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Shashwat Indeevar

In recent months the maritime supply chain of oil and petroleum, especially via the Middle East, has come under immense strain. The ongoing disruptions to sensitive maritime chokepoints make the economics around it increasingly precarious. The Strait of Hormuz has been heavily restricted since March 2, 2026 and as of August 30, 2026 remains effectively closed. According to the EIA, prior to the conflict roughly a fifth of global oil consumption and LNG trade flowed through this chokepoint. There was a partial opening that lasted from June 17, 2026 to July 14, 2026. More recently on July 20, 2026 Yemen’s Houthi movement declared a naval blockade and maritime embargo on Bab el Mandeb strait. Together, the two disruptions have exposed the limited scope for rerouting and increased the risk of a more persistent energy-price shock. In this piece, we examine their impact on tanker shipping routes and Saudi Arabia’s oil trade, using IMF PortWatch data available in Haver’s **TRANSPRT** Database.

**A closer look at chokepoints: Limitations of rerouting**

In the month following the closure of Strait of Hormuz, tanker trade volume through Hormuz collapsed to 22.8 thousand tons from 1.97 million tons over the previous 30 days.  This difference in lost volume was not absorbed by the aggregate of the remaining chokepoints – Suez Canal (Egypt), Bab el Mandeb (Yemen) and Cape of Good Hope (South Africa) – as the net volume through the alternate corridor remained nearly steady and has actually begun to fall off in the latest month (Figure 1 Blue line).

There were some significant gains made during the partial reopening from June 17 to July 14, where Hormuz tanker volume regained 29.5 percent of its original value.  However, the Houthi blockade (July 20) triggered a second, compounding decline, this time visible on all three lines (Figure 1). Hormuz dropped again, and the alternate corridor (which had shown slight gains at that time) dropped as well. These were not two independent shocks; the second disruption hit the very route ships had been relying on to cope with the first.

The US has maintained a strong naval presence in the region and has led Operation Prosperity Guardian, a multinational coalition set up in December 2023, which aims to protect commercial shipping in the Red Sea. The challenge is the asymmetry of the threat from the Houthis: cheap drone and missile attacks on tankers and naval escorts are hard to fully deter, so even a partial or a threatened blockade has proven effective.

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**Impact on Saudi Arabia: Tanker Port Calls and Tanker Exports Tonnage**

Saudi Arabia is at the center of these disruptions. Oil exports made up roughly 70-80 percent of its total export value over the past year. After the closing of the Strait of Hormuz, Saudi Arabia was able to reroute a share of its crude exports away from the Persian Gulf to the western Red Sea via its overland east-west (Petroline) pipeline. Breaking down the port calls and tanker export tonnage by the east-west ports during different phases of the chokepoint closures using the IMF PortWatch data shows the extent to which Saudi Arabia was able to manage the shock.

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During the first 30 days of the closure of Hormuz, the average port calls per day on the western ports (Red Sea) increased to 2.9 per day from 2.6 per day (11.4 percent increase), whereas the eastern ports (Persian Gulf) decreased to 8.4 per day from 12.0 per day (29.8 percent decline) (Figure 2). Meanwhile, the export tonnage on the western ports increased only 0.7 percent and on the eastern ports decreased by 43 percent (Figure 3). The disproportionate changes, especially on the east coast (Persian Gulf), show that not only were fewer ships arriving but they were carrying less cargo as well. This shows that the Petroline did offer some flexibility, but was not enough to offset the loss of eastern export capacity. A more severe decline was seen on both coasts after the Houthi blockade.

**Impact on Arabian Light Crude Oil Price**

Due to supply scarcity through Hormuz, markets initially responded by driving up oil prices from $66 to $121 per barrel (Figure 4). This initial windfall helped Saudi Arabia offset its physical loss in trade volume with financial gains. Over the following months, prices fluctuated as alternate shipping routes and partial supply adjustments took hold, easing to around $97 during the interim reopening, which was well above pre-crisis levels. Notably even after the reopening ended, the price settled at $88 a barrel. However, it is unlikely this stability will continue as we start seeing the full effects of the Houthi blockade, which reintroduces the scarcity dynamic that led to the initial price spike.

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Current energy demand has to be met, and the only short-term solution is a diplomatic resolution, as seen during the partial reopening of Hormuz. Otherwise, prices will likely be driven up, as evident after the first Hormuz closure, or at the very least remain highly sensitive to disruptions, causing fluctuations.

Such sustained energy-price volatility affects more than just Saudi Arabia's trade balance. Higher and less predictable energy prices push up inflation worldwide, raising costs for transportation, manufacturing, and shipping. This in turn slows down economic growth. If these chokepoints remain contested and viable alternatives, such as shipping routes or energy sources, aren't established, the risk isn't a one-time price shock, but a higher, more volatile energy baseline for the global economy.

The Economics of a Chokepoint Crisis

Ethan Harris

The employment report confirmed that the labor market is roughly in equilibrium. Now focus shifts to the August inflation data. I think a rate hike is quite likely on the 15th if the August data either match or exceed consensus forecasts.

**In times like this, data dependence make sense**

The Fed is often criticized for being too “data dependent.” Critics argue that tying policy to upcoming data: (1) makes the Fed backward looking, (2) adds to volatility as markets over-react to each release, and (3) signals the lack of a fundamental framework.

I disagree. After a period of hawkish or dovish news, there is always a period of high data dependence. At that stage incoming data becomes the final straw. In this instance high and rising inflation (chart) has created a strong focus on the August inflation data. After 65 months of above-target inflation, every member of the FOMC wants to hike if inflation does not return to target in a “timely manner.”

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**The tipping point**

The million-dollar question is what constitutes a “timely” return to target and what reading in August would confirm or contradict that goal?  The best approach is to look at August inflation readings relative to consensus forecast. If the numbers are below consensus, the doves will have an argument to stand on and may get enough support to stay on hold. However. If they come in above consensus, it is game over: doing nothing would damage credibility. Indeed, now that the FOMC has put us all on high alert, even consensus-like numbers should be enough to trigger a hike.

**I’m sticking to my forecast**

Of course, in any given month anything can happen. However, my fundamental view is that inflation will remain sticky high. The labor market may be in equilibrium, but the overall economy seems hot, with GDP running persistently above estimates of potential output (chart). Monetary policy is loose, judging by easy financial conditions (and, incidentally, accelerating money growth). The evidence is growing that the neutral funds rate is around 4%, not 3%. Fiscal policy is easy.

Outside of the neutral signals from the labor market, leading indicators of consumer price inflation signal strength. The PPI is strong. Survey measures of input and output prices remain robust and supplier delivery times as slowing. There is likely more pass through from high energy prices and tariffs. The AI build out is far from over. The Cleveland Fed’s Inflation Nowcasting tool has core PCE accelerating to 3.4% in August and 3.5% September.

It doesn’t look like “mission accomplished” to me. I continue to see a high probability of a September hike and another hike in December.

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Source: CBO, BEA and author’s calculation

No mas: the Fed and Inflation

Andrew Cates

Kevin Warsh used his first Jackson Hole address as chairman of the Federal Reserve last week to signal that the next move in US interest rates is more likely to be up than down. He is not alone. The European Central Bank raised rates in June and may go further, and several other central banks have turned hawkish. It is a puzzle. Growth has slowed, unemployment has drifted up, and core inflation across the advanced economies is not far above target. Why is the world's monetary tide turning towards tightening?

The official answer is that they are guarding against a shift in expectations. Supply-driven inflation need not persist; it does so only if firms and households come to expect it, and set wages and prices accordingly. Having misjudged the 2021 shock as transitory, central bankers are unwilling to take that chance a second time. So they are tightening not to reverse the shock, which no rate can do, but to keep expectations anchored.

That, though, is the lesser part of the story. The central banks are treating as a cyclical episode what is in truth a change of regime. For a generation the advanced economies enjoyed abundant supply and abundant capital: globalisation held down the price of goods, a global surplus of saving held down the price of money, and monetary policy had only to manage demand. Both conditions are now reversing, together. Supply has become scarce and costly; so has capital; and the two are related. The consequences are large. Inflation of this kind cannot be brought down by interest rates, only resisted at the cost of a recession. The real cost of capital has risen durably, not cyclically. And investors positioned for the old regime — a central bank that eases into every downturn, government bonds that hedge equities, real rates that subside to their former lows — are positioned for a world that will not return.

Supply has tightened on every front. In the past month alone the United States imposed 50 per cent tariffs on Canadian goods; American forces struck Iranian launchers at the Strait of Hormuz, returning Brent above $90; and a glacier collapse on the Nepal-Tibet border destroyed a regional trade route. Each raised costs, and none can be addressed by a policy rate. To these has been added a contraction in the supply of labour. The administration's immigration enforcement, recently extended to withdraw work authorisation from more than a million people, has reduced the workforce available to construction, agriculture and services, and raised wage costs in those sectors. None of this is a temporary deviation from a stable trend. The real cost of energy has risen for a quarter of a century to a record; reshoring is reconstructing supply chains at higher cost; and demographic change was tightening labour markets before enforcement intensified. The cheap and frictionless supply of the globalisation era has ended.

The data bear this out. Decompose US core inflation into demand- and supply-driven components and the demand-driven part has fallen to around one percentage point, with supply accounting for almost the entire excess over target (Figure 1). Across the G10, core rates are grouped close to target, none much above two and a half per cent (Figure 2). The demand that monetary policy governs has already been contained; wage growth is slowing, and market-based measures of inflation expectations remain near target. What sustains inflation above target is supply.

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Figure 1. Supply- and demand-driven contributions to US core PCE inflation. Source: San Francisco Fed (Shapiro decomposition) via Haver Analytics.

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Figure 2. Core inflation across the G10 — latest level and three-month direction. Source: Haver Analytics.

Capital has moved in the same direction, and the investment boom is not the offset it appears to be. The advanced economies are being asked to invest on a scale not seen in decades — in artificial intelligence, the energy transition, defence, and the fiscal deficits that accompany them — while the pool of saving available to fund it is shrinking, as the corporate sector shifts from net lender to net borrower and China channels less of its surplus into Western assets. Artificial intelligence adds to the pressure rather than relieving it: data centres are heavy consumers of electricity, the energy transition brings forward the demand for power and metals, and any supply it may eventually release lies well beyond the capital it now absorbs. The price of capital has already adjusted. The real yield on advanced-economy government debt, having declined for four decades to a record low during the 2022 inflation, has risen to its highest since before the financial crisis (Figure 3). The era of near-zero rates was the anomaly, not the level to which policy will return.

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Figure 3. Advanced-economy real 10-year government bond yield (nominal less CPI inflation), annual average. Source: OECD and national statistics via Haver Analytics; author's calculations.

The central banks, in short, are applying the wrong instrument. They are using a tool that acts on demand against an inflation that originates in supply, and against a cost of capital that has risen for structural reasons; the most it can achieve is a recession that leaves those forces intact. A higher policy rate cannot lower the oil price, replace the workers being removed, or add to the supply of saving. The expectations they are defending show little sign of dislodging, while the recession they would risk in defending them is the greater danger.

Investors are making the opposite error, still positioned for a world that has ended. The central-bank put does not operate when growth and inflation diverge; bonds and equities fall together in a supply shock, as they did in 2022; and the real rate remains high because capital is genuinely scarce, not because policy is temporarily restrictive. The assets that benefit are claims on real resources — energy and its inputs; those most exposed are long-duration bonds and the highly valued equities that a low cost of capital supported. September's decision matters less than the regime that produced it. The age of abundance is over, and neither policy nor markets have adjusted to its end.

The age of abundance is over — and neither policy nor markets have caught up

Viewpoints: September 2022

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