Oil is heading for $100 a barrel – and that could spoil everything for the Fed

• Oil prices have been on the rise in recent months and are heading towards $100 a barrel.
• That could push inflation back up, creating problems for the Federal Reserve.

Oil prices are closing in on $100 a barrel – and that's bad news for the Federal Reserve as it tries to kill off inflation for good.

Long-anticipated supply cuts by OPEC+ leaders Russia and Saudi Arabia have driven up key benchmarks in recent months, with Brent jumping 25% to $93 a barrel since the start of June and West Texas Intermediate up 29% to $90 over the same period.

The Fed's September meeting ends on Wednesday – and the uptick in crude prices could be a cause for concern.

The central bank is expected to hold interest rates steady, but hammer home a "higher-for-longer" mantra by signaling that its battle against soaring prices isn't over yet.

"Investors are weighing the signals from stronger oil prices, and what it means for inflation, and the signals from the Fed at tonight's rate decision," said Saxo Bank's Peter Garnry ahead of the announcement.

Higher oil prices drive up the cost of gasoline and other crude-related products, in turn squeezing the Consumer Prices Index higher.

This wouldn't be the first time the commodity has frustrated the Fed's efforts to bring inflation down to its target level of 2%.

In the 1970s, multiple supply crises in the Middle East led to key benchmarks spiking above $120 a barrel in today's money. That lead economists to coin the term "stagflation," referring to a combination of soaring prices and weak growth that the Fed was unable to fix.