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This chart shows why the Fed may not raise rates

Is crude oil driving inflation expectations?

Crude oil's recent leg lower may diminish the chances of a September rate hike.

According to Andrew Burkly, head of institutional portfolio strategy at Oppenheimer & Co., crude oil is closely correlated with inflation expectations, which have followed oil prices in this year's plummet.

"This is one of the most intriguing charts I see out there right now," Burkly said Monday on CNBC's "Trading Nation." "It really gets to the heart of the question, does the Fed need to raise rates?"

Burkly's chart shows the U.S. 10-year treasury note, crude oil and 10-year inflation expectations all dropped sharply coming into 2015, rebounded and are now on their way back down again.

According to data from the St. Louis Fed, the 10-year break-even inflation rate, which measures expected inflation derived from the U.S. 10-year treasury note yield and the treasury inflation-protected securities yield, fell to 1.66 percent on Friday, its lowest level since March. The 10-year yield rose more than 3 percent Monday to 2.23.

The Federal Reserve has a target inflation of 2 percent.

"If you look at the underlying inflation expectations data, which is really being driven by oil prices, I really would not suggest they need to do anything in a hurry," he said.

Further declines in oil prices could derail the Fed's plan for a rate hike before the year end, Burkly said.

"It's going to make it much more challenging for the Fed to say that there's an inflation problem, or that inflation is getting closer to their 2 percent target," he said.

Read More Analysts: Commodities dip derails Fed rate hike

Burkly said the Fed may choose to raise rates regardless of the inflation target.

"I think they are on a pre-determined course that they want to get away from zero. So they're likely to do something in September or December," he said.

However, Craig Johnson, technical analyst at Piper Jaffray, said oil is on the verge of drop even further. He said if crude oil breaks through the $42 level, it could drop to the low $30 range.

"You've got people that are still bullish on oil trying to defend that level in here right now," Johnson said. "But it looks like it's going to peter out a little bit. In the next couple of days, if we start moving back below that level, you'll start a whole other leg lower."

Crude oil fell in early morning trading Monday before rallying and closing up more than 2 percent. The commodity has fallen more than 15 percent year-to-date.

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