U.S. energy prices have rallied since summer, with oil futures soaring about 30% in the past three months, contributing to a pick up in headline inflation and posing a challenge for the Federal Reserve as its battles to control consumer price pressures.
The magnitude of the oil-price increase is small “Oil prices have risen by $20 per barrel — compared to +$40 in the first half of 2008 and +$45 in the first half of 2022 — and our forecast of retail gasoline prices using futures and wholesale markets indicates that most of the rebound has already occurred,” the strategists said.
However, energy only accounted for just 4% of personal consumption expenditure in July, of which 2.3% is the cost of motor fuel . That compares with 3.9% share for motor fuel in 2008 and 4.0-5.5% during the 1970s, said Hatzius and his team. Higher oil prices are likely to boost corporates’ capital spending in the energy sector. Strategists at Goldman forecast a GDP growth boost from the CapEx channel of 0.1% annualized over the next four quarters .
The Fed is unlikely to tighten monetary policy in response to higher oil prices The Fed is another factor by which higher energy prices could weigh on the economic growth, specifically if policy makers raise interest rates to contain the inflation effects of rising oil prices, the strategists wrote on Sunday.