Higher oil prices are a "manageable" challenge for the economy and shouldn’t have too much of an impact on the US consumer or the country’s gross domestic product, according to Goldman Sachs analysts.
The recent increase in oil prices has driven up the price of gasoline, which is a direct hit to consumers' wallets. The national average for gasoline on Monday sits at $3.85, just three pennies off its 2023 highs. Rising energy prices also increase concerns of slowing demand amid price hikes for goods and services.
“While we forecast consumption growth to slow during the fall and winter, we think higher oil prices are unlikely to cause consumer spending and GDP to decline,” wrote Goldman's chief economist Jan Hatzius to investors in a note published Sunday.
The analyst and his team highlighted that the magnitude of the oil price increase is small compared to periods in 2008 and the first half of 2022. Any GDP headwind would be partially offset by higher capital expenditures from the energy sector and by lower electricity costs, given a year-to-date pullback in coal and natural gas prices.
The analysts wrote that “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.”
Last week the Federal Reserve held interest rates steady at a 22-year high while leaving the door open for another rate hike later this year to bring inflation back down to 2%.
“Taken together, we estimate energy price changes will lower GDP growth by 0.3% annualized and consumption growth by 0.5% annualized over the next two quarters,” wrote Hatzius.
Goldman Sachs' analysts are lowering their fourth quarter 2023 and first quarter 2024 GDP forecasts by 0.4 and 0.2 percentage points respectively, to +0.7% and +1.9%.
Oil prices have steadily climbed since late June amid output cuts imposed by OPEC+ and unilateral supply curbs from Saudi Arabia and Russia.
West Texas Intermediate (CL=F) and Brent (BZ=F) are up roughly $20 since June, hovering just above $89 and $93 per barrel on Monday, respectively.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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