Sherman stated in a media interview that the shock brought by the sharp surge in international oil prices itself equates to a form of monetary policy tightening, thus making it potentially unnecessary for the Federal Reserve to intervene further.
Jeffrey Sherman, the deputy chief investment officer of DoubleLine, a Wall Street fixed-income asset investment giant, recently stated in a media interview that Federal Reserve policymakers should avoid overreacting to a new round of inflation driven by oil prices and should continue to focus their monetary policy on the already weak labor market conditions.
Sherman stated in a media interview that the shock brought by the sharp surge in international oil prices itself equates to a form of monetary policy tightening, thus making it potentially unnecessary for the Federal Reserve to intervene further.
Goldman Sachs strategist Dominic Wilson elaborated on a similar viewpoint in a recent research report: the market has overreacted to the oil shock, betting that the Federal Reserve will tighten its policies. However, historical experience suggests that this scenario is unlikely to materialize. The year 1990 is central to Goldman Sachs' current judgment. At that time, when the oil supply shock occurred, bond yields surged dramatically, and investors bet on the Federal Reserve tightening its policies. Ultimately, however, the Fed acted contrary to expectations by cutting interest rates as economic conditions worsened.
Iranian forces have effectively placed the Strait of Hormuz under 'quasi-blockade,' obstructing approximately 20% of global energy flows and accompanying tanker attacks and shipping disruptions. According to a recent report by the International Energy Agency (IEA), the U.S. and Israeli military operations against Iran at the end of February triggered the largest supply disruption in the history of the global oil market. Meanwhile, the U.S. government is considering restoring shipping channels and fully controlling the Strait of Hormuz through military means, including potential ground or quasi-ground control of Kharg Island.
DoubleLine Capital is considered a key leading asset management firm in the fixed-income sector on Wall Street, although it does not belong to the 'mega' fixed-income asset management empires like BlackRock or PIMCO. According to DoubleLine's official website, the company managed approximately $95 billion in assets as of September 30, 2025. Founded by Jeffrey Gundlach, who is known as the 'New Bond King,' DoubleLine quickly grew into one of the most closely watched investment institutions in the global fixed-income field shortly after its establishment in 2009. The influence of the firm’s latest strategic perspectives on the fixed-income sector is evidently greater than its absolute size would suggest.
OECD Raises Alarm on the US ‘Inflation Beast’
$Brent Last Day Financial Futures (JUN6) (BZmain.US)$Persistently hovering and increasingly stabilizing near $110 per barrel, it is no longer a brief wild spike—indicating that high oil prices may pose a persistent and significant threat. Investors, central bank policymakers, and business leaders must all confront this reality.
Since the outbreak of the Middle East war on February 28, Brent crude oil has surged more than 50%. Even as Trump emphasized positive progress in negotiations with Iran and expressed willingness to end the Iran war without reopening the Strait of Hormuz, Brent remains near the historical high of $110 per barrel. The core logic of market trading continues to revolve around whether the conflict will prolong further, rather than daily headlines related to negotiations.
The latest economic outlook report published by the Organization for Economic Cooperation and Development (OECD), which covers 38 member countries (including both developed and developing nations), shows that this Paris-based research institution and economic organization has significantly raised its inflation forecasts for major global economies. It now predicts that the average inflation rate for the Group of 20 (G20) countries this year will rise notably to 4%.
For the US market, the OECD forecasts that inflation will jump from last year’s 2.6% to approximately 4.2% this year. Its price outlook prediction for this year is 1.2 percentage points higher than in December, driven not only by the 'reflation' trend in energy prices amid rising geopolitical tensions but also by persistently tight labor markets, slowing net immigration, and tariff policies scheduled for 2025 that are still exerting upward price pressures in the first half of this year.
Oil Prices Are Acting Like an Interest Rate Hike Themselves
‘The oil price shock is itself a strong hawkish policy; in other words, international oil prices are acting like an interest rate hike themselves,’ Sherman explained, noting that rising energy costs can exert demand-reduction pressure on the overall economy without requiring central bank intervention.
Sherman emphasized that the Federal Reserve traditionally focuses on core inflation indicators, which measure inflation after excluding the often volatile prices of commodities. Fed officials believe these prices have broader impacts on consumers and businesses.
Although interest rate futures markets in the UK and Europe have been actively pricing in rate hikes due to energy shocks, Sherman believes that the appropriate response is not to react solely based on energy prices. Instead, he urges policymakers at global central banks to return to assessing where the economy stands within the labor market cycle.
Despite Stephen Miran, a Fed governor nominated by Trump, consistently advocating for a 25-basis-point rate cut, Sherman remains skeptical about the effectiveness of such cuts in stimulating job creation.
Sherman questions whether a mild easing will stimulate US companies' willingness to hire. "If we cut rates by 25 basis points, will that excite American companies into hiring? Probably not," he emphasized, adding that he still doubts that even a 100-basis-point rate cut would significantly alter the overall hiring outlook.
Sherman pointed out a concerning divergence in the bond market: despite recent rate cuts by the Federal Reserve, yields have failed to decline significantly. He attributes this to widespread fiscal concerns across developed markets, with long-term yields in the US, UK, Europe, and Japan all near the highest points of this cycle.
This 'market rejection' of the long end of the yield curve indicates concerns about long-term inflation and what Sherman refers to as a 'systemic fiscal policy consistency issue across the developed world.'
In addition to the increasingly intense pressure from rising energy prices, Sherman is also deeply concerned about the disruption to energy markets caused by ongoing geopolitical conflicts globally.
With aluminum and liquefied natural gas production facilities being impacted, he warned that merely ending hostilities would not restore the energy supply system to its pre-war state in Iran in the short term.
"If you want to calm the oil market, what we need now is demand destruction," Sherman stated, citing an adage from the commodities market: "The cure for high prices is high prices."
To respond to these conditions, he said that DoubleLine Capital is positioning itself to increase duration in the 5- to 10-year segment of the US Treasury yield curve. Sherman explained that this latest fixed-income strategy reflects their expectation of a sharp economic slowdown driven by oil price disruptions and persistent supply chain damage, rather than betting on the longer end of the yield curve, as fiscal concerns continue to suppress price trends in that segment.
Sherman’s latest perspective aligns closely with those of James van Geelen's team at Citrini Research and Goldman Sachs, both of which do not advocate using rate hikes to combat energy-driven inflation. Citrini Research recently published a heavyweight report titled 'The 2028 AI Doomsday Prediction,' offering a comprehensive vision of a dystopian AI-driven future where, despite a surge in global AI productivity exceeding expectations, the wholesale disruption of white-collar jobs triggers a 'global economic pandemic.' This prediction has sparked panic across global financial markets. James van Geelen's team recently warned investors not to abandon expectations of Fed rate cuts, as soaring oil prices are likely to deliver a new shock to the economy, one strong enough to prevent the Fed from considering rate hikes.
He believes that the market has mistakenly conflated the current situation with the upward shock in oil prices during the Russia-Ukraine conflict in 2022, committing a classic recency bias error. "The backdrop in 2022 was that interest rates were at the zero lower bound and CPI exceeded 5%, leaving the Federal Reserve with no choice but to implement substantial rate hikes. The world we are in now is entirely different, with interest rates already approaching neutral levels." James van Geelen stated that if this war drags on for an extended period, global stock prices are expected to continue falling, and the resulting wealth effect will lead to a deeper-than-expected economic weakness in the United States, making it impossible for the market to sustain expectations that the Federal Reserve will not cut interest rates over the next 12 months.
Editor/Melody