At her press conference Janet Yellen stated that the net effect of the drop in oil prices is that of a tax cut, and therefore supportive of US output and employment.
My take is that the cuts in spending due to both the equal income lost by oil producers as well as the reduced ‘borrowing to spend’/credit expansion results in a net reduction of aggregate demand of hundreds of $ billions.
The Fed spends over $100 million on research, which is more than double what I spend, so take that into consideration as well.
So it makes sense for the markets to go with the Fed, which would mean stocks go back through the highs, and rates rise in anticipation of Fed rate hikes as the ‘oil tax cut’ does its thing to accelerate sales/output/employment.
Brent crude held steady above $61 a barrel on Thursday, bringing a sharp drop in prices to a temporary halt as companies are forced to cut upstream investments around the world.
Chevron has put a plan to drill for oil in the Beaufort Sea in Canada’s Arctic on hold indefinitely, while Marathon Oil cut its capital expenditure for next year by about 20 percent.
Canadian oil producers also deepened 2015 spending cuts, as Husky Energy, MEG Energy and Penn West Petroleum joined those hacking back capital budgets in response to tumbling crude prices.