Page 20 - Policy Economic Report - September 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

The resilience of demand is significant for monetary policy because it reduces the immediate pressure on
the Federal Reserve to support economic activity through lower interest rates. According to Deloitte, the
Federal Reserve Chair highlighted improvements in new hiring, private-sector earnings, business capital
investment and credit flows, while noting that broader financial conditions were not considered
restrictive. The continued strength of AI-related investment has also provided an important source of
economic momentum, helping offset some of the pressures arising from higher energy prices and
geopolitical disruptions.

At the same time, the inflation environment remains challenging. Higher energy prices are feeding into
consumer prices and business costs, while strong demand could make it more difficult for inflation to
return rapidly to the central bank's target. The combination of resilient economic activity and persistent
price pressures has therefore shifted expectations towards higher interest rates for longer. Deloitte
reports that financial markets currently attach a 50.1% probability to one additional rate increase and a
38.6% probability of two further increases before the end of 2026.

The changing monetary-policy outlook has wider implications for global financial conditions. Higher US
interest rates can raise the cost of dollar-denominated borrowing, influence capital flows towards US
assets and place pressure on other central banks to maintain comparatively restrictive policy settings. The
impact is particularly relevant at a time when long-term government bond yields have already risen
substantially across major economies. The Federal Reserve's policy path will therefore remain an
important determinant of global financing conditions during the remainder of 2026.

The US labour market presents another important dimension to the outlook. Deloitte notes that overall
employment growth has remained modest, while employment gains since January 2025 have been
concentrated almost entirely among women. Healthcare and private education accounted for more than
one million additional jobs over this period, while employment outside these sectors declined. Tariff-
related cost pressures and trade uncertainty may have constrained employment in manufacturing and
related industries, while slower labour-force growth has also limited overall job creation.

4. Southeast Asia accelerates clean-energy push as energy shock reinforces energy security concerns

The prolonged disruption to global energy markets has begun to influence the energy-policy priorities of
Southeast Asian economies, with countries increasingly turning towards renewable energy, electrification
and energy efficiency as tools to strengthen energy security. A recent analysis by Zero Carbon Analytics,
reported by IntelliNews, shows that Indonesia, Malaysia, Thailand, Singapore, Vietnam and the Philippines
introduced 37 renewable-energy and electrification policies since the beginning of the Iran conflict,
compared with 29 policies relating to fossil fuels.

The distinction between the two groups of policies is significant. Of the measures introduced, 24 clean-
energy and electrification policies were designed as long-term interventions, compared with only six long-
term fossil-fuel policies. Many of the fossil-fuel measures have instead been aimed at addressing
immediate supply and affordability pressures arising from the energy shock. This suggests that, while

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