At the most recent FOMC meeting, Jerome Powell delivered a message the market heard but perhaps did not fully absorb: the Fed will not move on rates until it has clarity on geopolitical developments — specifically the trajectory of the conflict in the Middle East. That is not a soft hedge. That is a conditional pause with a very specific trigger.
The implication is significant. Rate policy is no longer purely a function of domestic inflation data and labor market readings. It is now partially hostage to a geopolitical variable the Fed cannot control, cannot model with precision, and cannot communicate around with any confidence. That uncertainty alone has a cost.
"The Fed is not waiting for inflation to move. It is waiting for a war to resolve. That is a fundamentally different kind of waiting."
The Oil Transmission Mechanism
The channel from Middle East conflict to U.S. monetary policy runs directly through oil. The region accounts for a substantial share of global crude supply, and any meaningful escalation — whether through shipping disruptions in the Strait of Hormuz, direct infrastructure damage, or a broader regional spillover — would create an immediate supply shock.
Oil at $100 is a headline. Oil at $120 is a political problem. Oil sustained above $150 for 30 days or more is a structural inflation event — the kind that forces the Fed's hand regardless of what it would prefer to do. At that level, energy costs flow through to transportation, manufacturing, food, and services with a lag that is well-documented and difficult to arrest.
Our base case does not assume $150+ oil. But it is no longer a tail risk we dismiss. It is a scenario we are pricing explicitly into every deal we underwrite right now.
What Sustained High Oil Does to Rates
The Fed faces an ugly choice in a $150 oil environment: tolerate the inflation and risk expectation de-anchoring, or raise rates into a growth slowdown. Neither is clean. The historical precedent — 1973, 1979, 2008 — suggests the market does not wait for the Fed to decide. It reprices immediately on the expectation of what the Fed will eventually have to do.
That repricing is not gradual. It is disorderly. And it tends to hit the most rate-sensitive assets first and hardest.
Tech Is the Most Exposed
Technology equities — particularly growth-oriented names trading on multiples that extend 5, 7, or 10 years into the future — are mathematically the most sensitive to rate increases. Their valuations are the present value of future cash flows, and the discount rate applied to those flows is a direct function of the risk-free rate.
This is not a bear case on tech as a sector. It is a mechanical observation about rate sensitivity — and it is why we watch oil with the same attention we give to CPI prints.
Housing: Inventory in a Rate-Sensitive Market
The housing market is already operating under constraint. Existing home inventory remains historically suppressed — a direct consequence of the lock-in effect, where homeowners who financed at 3% mortgage rates have no economic incentive to sell into a 7%+ rate environment. This has created a market where prices have remained surprisingly resilient despite affordability deteriorating sharply.
A rate increase driven by an oil shock would deepen this dynamic. New buyers face higher monthly payments, reducing demand. Existing owners remain locked in, constraining supply. The result is a market that freezes rather than corrects — transaction volume collapses, but prices do not necessarily fall, because neither buyers nor sellers have incentive to transact at clearing prices.
For real estate investors and developers, this creates both a challenge and an opportunity. The challenge: exit assumptions become uncertain when transaction volume is low. The opportunity: distressed sellers — those who must transact regardless of rate levels — become motivated counterparties. The discipline is in identifying which category a given asset sits in.
Our Current Positioning
We are not making binary bets on geopolitical outcomes. What we are doing is stress-testing every underwrite against a $150 oil scenario, modeling the rate implications, and asking whether the deal still works. For real estate, that means being conservative on exit cap rates. For credit, that means shorter duration and tighter LTV requirements. For equity-linked structures, that means building in optionality rather than assuming a linear path.
The Fed has told us it is watching. We are watching the same thing — just from the other side of the capital allocation decision.
This insight reflects the views of Michie Capital as of the date of publication and is for informational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any security or financial instrument. Market conditions change rapidly; nothing herein should be relied upon as a prediction of future events.