Federal Reserve Chair Janet Yellen says if oil prices drop again the economic pain felt in crude-exporting nations and by oil companies could spill over into the “rest of the global economy.”
FuelFix.com report that Yellen, in a speech today outlining economic risks, counted the plunge in oil prices, which have dropped 64% in nearly two years, as one of two broad downside risks that could weigh on worldwide growth.
Low crude prices, she said, could boost U.S. spending and economic activity over the next few years, but oil exporters likely would curb government spending and oil companies would continue to shed jobs.
“The apparent negative reaction of financial markets to recent declines in oil prices may in part reflect market concern that the price of oil was nearing a financial tipping point for some countries and energy firms,” Yellen said in a speech to the Economic Club of New York. The other global risk Yellen mentioned was China’s slowing economic growth.
“If such downside risks to the outlook were to materialize, they would likely slow U.S. economic activity, at least to some extent, both directly and through financial market channels as investors respond by demanding higher returns to hold risky assets, causing financial conditions to tighten,” Yellen said.
More broadly, Yellen’s speech was about her expectation that the aftereffects of a global slowdown likely will have a limited effect on U.S. economic growth amid steady domestic household spending, though she acknowledged the outlook is “subject to considerable uncertainty.”
“Gradual increases in the federal funds rate over time will likely be appropriate,” she said. “That said, this assessment is only a forecast. The future path of the federal funds rate is necessarily uncertain because economic activity and inflation will likely evolve in unexpected ways.” Read the full story.
