In the wake of surging oil prices, American consumers are feeling the pinch at the pump as gasoline costs continue to climb. This uptick has spurred concerns regarding potential repercussions on consumer spending, demand, and the overall cost of goods and services. However, analysts at Goldman Sachs assert that while the spike in oil prices presents a challenge, it is one that can be effectively managed without causing significant harm to the US consumer or the nation’s Gross Domestic Product (GDP).
As of Monday, the national average for gasoline stands at $3.85, a mere three cents shy of the 2023 peak. Chief economist Jan Hatzius and his team at Goldman Sachs articulated in a report released this Sunday that “the magnitude of the oil price increase is small compared to periods in 2008 and the first half of 2022.” Hatzius further contends that the impact on GDP is expected to be mitigated in part by increased capital expenditures within the energy sector and reduced electricity costs.
Addressing concerns about Federal Reserve policy adjustments in response to heightened oil prices, the analysts noted, “the Fed is unlikely to tighten policy in response to higher oil prices, especially at a time when core inflation and inflation expectations are falling.” In the past week, the Federal Reserve maintained interest rates at a 22-year high, while indicating a willingness to consider an additional rate hike later this year as a measure to rein in inflation to a target of 2%.
Goldman Sachs’ analysts have revised their GDP projections for the fourth quarter of 2023 and the first quarter of 2024, reducing them by 0.4 and 0.2 percentage points respectively, resulting in forecasts of +0.7% and +1.9%.
Since late June, oil prices have exhibited a steady ascent, propelled by output cuts enforced by OPEC+ and independent supply constraints imposed by major oil-producing nations like Saudi Arabia and Russia. West Texas Intermediate (CL=F) and Brent (BZ=F) have surged by approximately $20 during this period.
Despite the escalating oil prices, analysts at Goldman Sachs maintain their stance that the impact on the US consumer and GDP will remain manageable. Hatzius acknowledges an anticipated slowdown in both GDP and consumption growth during the autumn and winter seasons but asserts that energy prices alone are unlikely to trigger a decline in either.
In summary, while the surge in oil prices may be causing concern, Goldman Sachs’ experts project that the economic impact will be limited, bolstered by factors such as increased capital investments in the energy sector and reduced electricity costs. They remain confident that the US economy possesses the resilience to weather this challenge without significant detriment to consumers or the GDP.
Source: Yahoo Finance
