Page 19 - Policy Economic Report - September 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

multi-year highs. Earlier in September, the global bond sell-off had already pushed the US 30-year
Treasury yield to around 5.5%, its highest level since 2004, highlighting the broader increase in long-term
borrowing costs.

The developments illustrate an important feedback mechanism between energy markets, inflation and
financial conditions. Higher oil and gas prices increase production and transportation costs and can raise
consumer prices, prompting markets to anticipate a more restrictive monetary-policy stance. Higher
expected interest rates, in turn, push government bond yields upward and increase borrowing costs for
households, businesses and governments. In the United States, the rise in Treasury yields has already
contributed to mortgage rates moving above 7%, increasing financing costs for households.

The persistence of elevated bond yields also has implications for public finances and investment. Higher
sovereign borrowing costs increase debt-servicing requirements at a time when many governments are
already facing substantial fiscal pressures and significant refinancing needs. The September bond-market
sell-off therefore adds another constraint to fiscal policy, while higher market rates could gradually weigh
on private investment and interest-sensitive sectors.

The recent developments highlight the increasingly interconnected nature of geopolitical, energy and
financial risks. A prolonged disruption to energy supplies could sustain inflationary pressures and delay
monetary easing, while simultaneously increasing borrowing costs and weakening demand. Conversely, a
durable resolution to the conflict and normalization of energy markets could ease both inflation
expectations and pressure on bond yields. The evolution of oil prices and long-term government bond
yields will therefore remain important indicators of the broader global economic and financial outlook in
the months ahead.

3. Federal Reserve tightens policy as resilient US economy complicates inflation outlook- Deloitte

The US Federal Reserve has entered a more restrictive phase of monetary policy as persistent inflation
and resilient domestic economic activity complicate the outlook for interest rates. According to
Deloitte’s Weekly Global Economic Update for the week of September 21, 2026, the Federal
Reserve raised its benchmark interest rate for the first time in three years, with the decision receiving
unanimous support from the 12 members of the Federal Open Market Committee. The move reflected
concerns that inflation remains too high and that underlying price pressures have not yet moderated
sufficiently.

The decision comes against the backdrop of continued strength in the US economy. Recent indicators
point to firm consumer demand and sustained business investment, particularly in areas associated with
artificial intelligence. US retail sales increased 1.2% month-on-month in August and 6% year-on-year,
indicating that household spending has remained robust despite a decline in real, inflation-adjusted
wages. Excluding gasoline, retail sales still increased by 1.1% from the previous month, suggesting that
the strength of consumption extends beyond the direct effect of higher fuel prices.

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