According to analysts at Wells Fargo, higher oil prices do not have as much of a slowing effect on the US economy as they did years ago. They warn however, about the uncertainty that the crisis could impart could potentially be more meaningful.
Key Quotes:
“Higher oil prices currently have more of a stimulative effect on the U.S. economy, which partially offsets some of the drag from slower real PCE growth, than they have had historically.”
“American production of crude oil has mushroomed over the past decade due in large part to technological advances in drilling. Higher oil prices, if sustained, encourage more investment in the energy sector. Furthermore, other industries are not as dependent on oil as an energy source as they were in the 1970s. In short, the direct effects of the Iranian crisis on the U.S. economy appear to be rather small.”
“The uncertainty that the crisis imparts could potentially be more meaningful. Stock markets have weakened since Soleimani’s death, and credit spreads have moved out a bit. These moves represent a modest tightening in financial market conditions that, if sustained, could impart some headwinds on the economy. In addition, American consumers and businesses could potentially turn cautious.”
“Consumer spending could potentially take a more meaningful hit if a marked cycle of violence were to take hold.”
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