It looks like that no matter what happens with oil prices, whether they’re rising or falling, it’s going to be a lose/lose situation.
According to an article published on CNN.com last Wednesday, the United States Federal Reserve is now concerned that falling oil prices will cause the economy to grow at a more robust pace, which would cause any possible interest rate cuts to be pushed to the wayside.
Considering oil related products drive many of the expenses in the United States – the obvious ones being gasoline and heating oils, the not so obvious being airfare, products transported by the trucking industry, etc. – it appears that falling oil and gasoline prices could leave many consumers with lots of extra discretionary income to throw back into the economy. Although oil prices alone wouldn’t be able to justify increasing or decreasing key interest rates, the commodity will be a significant factor regarding where the rates end up.
According to the referenced article, this all may be a moot point considering The Fed believes that oil prices will rise throughout the year and will maintain an average price between $60 and $70 per barrel – which would be right in line with last year’s average oil price.
Either way, it appears that whether the price of oil rises or falls it is going to be a significant economic factor in 2007.