With oil exceeding $100 a barrel more than six months into the war in Iran, Conning’s investment chief for North America Cindy Beaulieu warns that the Federal Reserve should do what it can to ensure that these “very scary numbers” don’t bleed into other parts of the market and boost already high inflation. 

“We are seeing broad energy prices, diesel fuel in particular, hitting very scary numbers,” Beaulieu told Institutional Investor the week before the Fed was set to announce its decision on rates in September. “If this persists much longer, the bleed-through to other parts of the inflation components is going to happen, and that's what the Fed has to be really concerned about right now.”

According to the allocator for the $191 billion Generali-owned investment manager, the “bleed-through” is coming back into the market at a time when inflation remains stubbornly high. And while the Fed should do what it can to bring rates higher and dampen some of the demand, Beaulieu concedes that the U.S. central bank can only do so much. 

“The problem for the Fed is that these are not the elements of inflation that are easily controlled by monetary policy,” she added. 

Beaulieu is also concerned that the Fed is thinking that the war in Iran and corresponding challenge to global energy prices will pass: If prices are higher a year from now than they are today, “That ‘this too will pass’ mentality isn't going to cut it,” because the price increases will spread, “and that's what they've got to try to prevent.”

Back in April, Beaulieu felt the U.S. was “getting to a tipping point” with the war. Looking back, she had hoped “there was some path that the administration was aware of that maybe the rest of us didn't see to diplomacy and a rapid conclusion.” 

“What we have learned since is that there is a bit of a hornet's nest that has been poked, and this is not going to be quick,” Beaulieu has since told II. 

Rising oil prices, and their staying power, are a widespread concern. Ismael García Puente, deputy director of investment strategy at MAPFRE Asset Management, said in an emailed statement that while he still thinks “the escalation could prove temporary… if oil stays within the $100 to $120 a barrel range for an extended period, it could have meaningful implications for both inflation and economic growth, and above all for the path of monetary policy.”

Garcia Puente added that “some kind of agreement ultimately needs to be reached, but the negotiating window is narrowing as the U.S. midterm elections approach.”