Federal Reserve's Monetary Policy Surprises Impact Energy Prices Significantly
The impact of U.S. monetary policy on energy prices was studied using different surprise measures. Results show that unexpected changes in interest rates affect energy futures prices and trading volumes significantly. A 100-basis-point increase in the federal funds rate leads to a 3% drop in crude oil prices. Additionally, the Federal Reserve's large-scale asset purchase programs have a substantial impact on crude oil prices, equivalent to a 156-basis-point rate cut.