Steve Hanke says the Fed has been searching for the causes of inflation

An aerial view of Phillips 66 oil refinery is seen in Linden, New Jersey, United States.

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Brent crude fell below $85 a barrel Monday, as recession fears weighed and the U.S. dollar surged.

Brent futures for November settlement fell to around $84.53 early in the day, before recovering to trade around $85.85 by 10 a.m. London time. West Texas Intermediate futures also came off lows to trade around $80.

The U.S. dollar surged to a high not seen since 2002 Monday, while sterling tumbled to a record low against the currency.

On Friday, both Brent and WTI futures fell around 5% to hit their lowest level since January.

The drop in oil prices is a “macro move led by a stronger dollar,” which is triggering fears of a recession, according to Amrita Sen, co-founder and director of research at Energy Aspects.

It comes as central banks around the world — including the U.S. and the U.K. — continue to hike interest rates in an effort to tackle inflation.

Investment bank Saxo’s strategy team said market sentiment was continuing to deteriorate.

“The unrelenting pressure on commodities, including crude oil, continues following Friday’s gloomy session which saw accelerated dollar strength and growth pessimism cause a ripple through markets,” Ole Hansen, Head of Commodity Strategy at Saxo said.

“WTI trades below $80 per barrel while a return to the mid-80’s in Brent may soon see OPEC+ action to support prices,” he said.

As Russia warned it will not supply commodities to nations agreeing to cap prices for its crude and markets anticipate a recession, “the energy sector could be the first to find support once the dollar stabilises,” Hansen said.

Steve Hanke says the Fed has been searching for the causes of inflation 'in all the wrong places'

Fears around an economic slowdown continue to mount, with Steve Hanke, professor of applied economics at Johns Hopkins University, putting the chance that the U.S. will fall into recession at 80%.

“If [the Fed] continue[s] the quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it’ll be severe,” Hanke told CNBC’s “Street Signs Asia” on Friday.

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