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That
conclusion, in research published Monday by the San Francisco
Federal Reserve Bank, suggests that the longer the price of oil
stays low, the better the news is for a recovery that has been
moderate at best.
That's significant for a central bank that is seeking evidence
that the economy is strong enough for it to continue to raise
interest rates from their current level of 0.25 percent to 0.5
percent.
Oil currently sells near $40 a barrel, down from around $100 a
barrel two years ago, but households have generally assumed the
decline is temporary, wrote the Fed researchers. That's pared
about 30 percent from the impact that would otherwise be
expected, they concluded.
"Because the decline in oil prices is considered temporary,
households with less information do not believe their future
income will rise as much as they would if they had full
information," the researchers said. "As a result of this
less-informed perception, they choose to spend relatively less.
In turn, the more muted consumption response translates into a
more muted overall boost to economic activity."
Still, that muted effect could be temporary, if households begin
to see cheap oil as permanent, they conclude.
"Continued low oil prices could change consumer perceptions,
leading them to increase spending as they learn about this
greater degree of persistence," they wrote.
(Reporting by Ann Saphir; Editing by Phil Berlowitz)
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