The higher oil prices allow for less spending elsewhere, so equities may suffer, leading to debt looking more attractive and that will outweigh the potential of inflation as it seems to be tame right now.
Neutral rate
A Federal Funds rate of 3-4% is neutral, and when rates were at 1-2% they were stomping on the gas trying to get the economy going. It wasn’t that long ago they went to 6% to slow the economy. So until they get past 4% we need to consider this a move back to neutral.
The Fed is concerned, for good reason, about the housing sector. But that doesn’t mean they will move because of it. That would be too harmful as it would affect everyone, not just the speculators. If they really want to pop housing, I would think you would hear more about tightening credit controls on second and third homes. That would send the message that it can’t continue and hopefully allow the market to unwind slowly avoiding the precipice that’s approaching.
Inter-connectivity of markets
Keep in mind moving forward the inter-connectivity of markets. One bump in one market can ripple thought causing lots of problems. Also this becomes important when we look to diversify portfolios and find that there is so much correlation between the markets that diversification becomes very difficult.
Dr. Douglas Rice 