They also drag down prices for stocks, bonds and other investments. That’s a factor that helped cause the second-largest US bank failure in history last month, which in turn meant harsher scrutiny on banks worldwide. The fear is that the banking industry’s troubles could lead to a pullback in lending, which would further hurt the economy.

Hope on Wall Street had been rising that the Fed may already be done raising rates and that cuts to rates could even happen later this year. Such cuts would release some of the pressure on the economy, which is still growing thanks to a strong job market but has shown pain in the housing market and other corners.

Cuts to rates also tend to act like steroids for financial markets. US stocks have tended to return an average of 8 per cent in the three months following the peak of the Fed’s federal funds rate, according to Goldman Sachs. That includes six instances going back to 1982.

That’s why so much furore has built among traders as they bet on how much further the Fed will raise rates. On Friday, they were leaning slightly toward the Fed holding steady at their next meeting in May, which would be the first time in more than a year that it didn’t hike rates.

But following Monday’s leap for oil prices, bets built that the Fed may hike rates by another quarter of a percentage point in May, according to CME Group.

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Short-term Treasury yields initially rose on such expectations, though they eased following the release of a disappointing report on the US economy. It showed manufacturing activity in the U.S. weakened last month by more than economists expected.

March marked its fifth straight month of contraction and showed the biting effects of past rate hikes are already working through the system. Following that report, the two-year Treasury yield fell to 3.97 per cent from 4.04 per cent late Friday. It had been above 4.11 per cent earlier in the morning.

It got its initial push higher from the rally for oil prices. A barrel of US crude oil jumped $US4.75 to settle at $US80.42 after oil producers said over the weekend they would cut production from May until the end of the year.

Less supply of oil would raise its price, as long as demand stays steady.

Brent Crude, the international standard, rose $US5.04 to $US84.93 per barrel. It’s roughly back to where it was a month ago, though it’s still well below where it was in March 2022, when it topped $US130 per barrel after Russia’s invasion of Ukraine raised worries about energy supplies.

Amazon was one of the heaviest weights on the index Monday after it slipped 0.9 per cent.

Tesla fell 6.1 per cent after it said over the weekend that deliveries in the first three months of the year fell short of analysts’ expectations, even though it still set a record.

AP