Rate Hikes Are Back on the Table
The Weekend Edition is pulled from the daily Stansberry Digest.
A three-year high...
On Tuesday, the Bureau of Labor Statistics released its consumer price index ("CPI") report for April. The CPI, the Federal Reserve's preferred measure of inflation, rose 3.8% year over year. Not only was that above Wall Street's estimate of a 3.7% increase, it also marked the fastest annual increase in inflation since May 2023.
Since the CPI hit a nine-month low of 2.4% in January and stayed there in February, it has sharply increased for two straight months.
And energy is the main culprit...
In April, the energy component of the CPI soared 17.9% year over year. Under the "energy" umbrella, gasoline prices jumped 28.4%, and fuel oil surged more than 54%.
The energy story has been front and center in the market. The war in Iran has pushed up oil and gas prices. Oil has hit a four-year high, and the average price for gasoline in the U.S. is now above $4.50 per gallon.
With West Texas Intermediate crude (the U.S. benchmark) above $100 per barrel, oil prices are up more than 65% from the end of May 2025. And gas prices are up 42% over the same period.
In short, energy prices are continuing to drive inflation higher.
For May, the Cleveland Federal Reserve expects the CPI to hit 4.2%. That would mark a three-year high.
Even without energy, inflation is ticking up...
On a core basis, which strips out energy and food prices, the CPI rose 2.8% year over year in April – more than the 2.7% Wall Street expected. Like "headline" CPI, core CPI has ticked up for two straight months. It just hit a six-month high.
That's important for where interest rates go from here...
Both the markets and members of the Fed are beginning to shift their focus away from the labor market and toward inflation.
This week, the Senate confirmed Kevin Warsh as the new central bank chair. But he has his work cut out for him...
As our colleague Greg Diamond shared in an update to his Ten Stock Trader subscribers on Tuesday...
If interest rates continue to rise, this should be a warning for the stock market, as bond traders will begin to price in the new Federal Reserve chair hiking rates rather than easing them.
That's exactly what we saw this week. The 10-year Treasury yield rose, matching its year-to-date high of 4.45%. The market is now pricing in a 35% chance that the Fed will raise rates this year instead of lowering them, versus only the 2% chance priced in a month ago.
That's not what the market wants to see...
The Energy Squeeze Could Last Into 2027
Meanwhile, the Strait of Hormuz is still closed...
It has been almost 11 weeks since the war in Iran started. Even with a "ceasefire" in place, traffic through the Strait of Hormuz remains about 95% below normal levels. That means essentially 20% of the world's typical oil supply is out of commission.
Earlier this month, our colleague Dan Ferris explained that even if the strait were to open tomorrow, it could take up to six months to clear all the mines Iran has deployed in the area.
And Amin Nasser, CEO of Saudi Arabian energy giant Saudi Aramco, estimates it will take "several months" for the oil market to rebalance. That's "the most optimistic scenario."
As CNBC reported, Nasser told investors on an earnings call that tankers are deployed in the wrong places, and ships will need to be rerouted once the strait is reopened.
If the blockade extends into June, Nasser says the oil market won't return to normal until 2027.
For now, the world must get its oil elsewhere...
We've written before about how the Strait of Hormuz closure has disrupted energy markets. It also played a part in the United Arab Emirates ("UAE") leaving the OPEC oil cartel.
In the April 29 Digest, we wrote...
Now that it's no longer a member of OPEC, the UAE could almost immediately increase its production by more than 1 million barrels per day and up to 1.8 million barrels by the end of the year.
That would lower oil prices in the long run... if that oil can hit the markets. But with the Strait of Hormuz closed, it can't.
You see, unfortunately, the UAE is heavily reliant on the Strait of Hormuz...
About half of the UAE's oil output and more than 90% of its natural gas exports pass through the strait.
Nasser estimates that the global market has lost more than 1 billion barrels of oil since the conflict began.
Still, demand for energy products hasn't disappeared. As our colleague and Market Maven editor Gabe Marshank wrote in a special report...
The world doesn't stop needing oil just because a shipping lane gets disrupted.
So countries and companies are looking elsewhere to secure energy supplies.
The U.S. is one of the places helping fill the gap. The Energy Information Administration expects U.S. natural gas exports to jump 12% this year to 17 billion cubic feet per day. And it's expected to grow another 9% in 2027.
U.S. natural gas exports aren't the only beneficiary, though. More from Gabe...
When Middle Eastern supply gets threatened, buyers immediately turn to the sources of oil that don't require sailing through a contested waterway. These include offshore locations near the Gulf Coast, Brazil, and West Africa.
Demand for offshore oil, and the specialized vessels needed to drill and transport it, is soaring. Gabe continues...
Meanwhile, the biggest oil companies on Earth – like BP (BP), Chevron (CVX), ExxonMobil (XOM), and Shell (SHEL) – are all racing to lock up rig contracts. Some of them are signing deals years in advance, because they know the math as well as anyone.
This isn't the only spot in the energy sector where we're seeing opportunity today...
AI power demand is also pushing prices higher. Electricity prices rose 6% year over year in April's CPI report.
That's why our corporate affiliates Altimetry and Chaikin Analytics recently teamed up to share how energy is reshaping the next phase of the AI boom...
Microsoft just admitted that soon, it may not even be able to use the AI chips it has... because it doesn't have enough electricity to run them. And BlackRock says investors are pulling money out of AI and moving it into energy instead.
The biggest distortions are showing up inside corporate earnings – and quietly revealing the next winners and losers of the AI boom before the rest of the market catches on.
Don't miss out on their urgent briefing on what you need to do to prepare... and why you need to act by May 28.
All the best,
Nick Koziol
Editor's note: Elon Musk's latest AI move revealed a growing problem inside Silicon Valley... AI companies need far more electricity than anyone expected. Now, tech giants are quietly building a new "shadow grid." And as Big Tech scrambles to lock in power supplies, a new class of energy-related stocks could emerge as some of the biggest beneficiaries of AI's next phase.