WASHINGTON (dpa) – Surging US oil production has contributed to the sharp drop in global oil prices since last year, but Federal Reserve Chairwoman Janet Yellen has little doubt about the economy-wide benefits of cheaper energy.
Jobs in the Bakken oil fields have fueled a boom in North Dakota and Montana, even as the rest of the US economy faced recession and sometimes halting recovery since 2007. Oil prices well above 100 dollars a barrel brought prosperity to established oil states, too, including Texas, Oklahoma, Louisiana and Alaska.
Now, the “plunge” in oil prices, as Yellen described it during her testimony Tuesday to the Senate Banking Committee, is being felt in those regions.
“While the drop in oil prices will have negative effects on energy producers, and will probably result in job losses in this sector, causing hardship for affected workers and their families, it will likely be a significant overall plus on net for our economy,” she said.
“Primarily, that boost will arise from US households having the wherewithal to increase their spending on other goods and services as they spend less on gasoline.”
Consumer savings on petrol at the pump comes as the long-troubled job market finally shows signs of lasting progress. Payroll expansion in the last three months was at the highest pace since the late 1990s, while some discouraged workers are resuming job searches and pay and hours worked are edging up.
Yellen highlighted an uptick in workers quitting to change jobs as a “barometer of worker confidence and labour market opportunities.”
The drop in oil prices – futures on benchmark West Texas Intermediate were below 50 dollars a barrel Tuesday – has come amid the North American production boom and recent increases in post-conflict pumping from Iraq and Libya.
“The bulk of this decline appears to reflect increased global supply, rather than weaker global demand,” Yellen said.
The United States economy grew at a pace of 2.4 per cent in 2014, a four-year high. Cheaper energy is helping to mute already low US inflation, giving Yellen and her colleagues at the central bank confidence to keep the Fed’s benchmark interest rate near zero for at least a few more months.
Overseas, though, the eurozone and Japan are again fighting stagnation, while China struggles to manage a slowdown from its long, rapid expansion.
“The uncertainty surrounding the foreign outlook, however, does not exclusively reflect downside risks,” Yellen said.
Other major central banks are in a process of increasing monetary stimulus, and cheaper oil “could boost overall global economic growth more than we expect,” she said.
“The huge decline we’ve seen in oil prices has had repercussions all over the globe – in some areas positive, very positive, in other areas negative,” Yellen said.