Crude prices approaching $100 per barrel may not be especially harmful for the U.S. economy, according to research firm Capital Economics, which notes that the country’s position as a modest net exporter of energy helps soften the impact.
Stephen Brown, deputy chief North America economist at Capital Economics, wrote in a note this week that higher oil prices would likely reduce spending on other goods and services as households allocate more money toward energy. However, he said “that would be offset over time by the positive effects of stronger income in the oil patch.”
Brown added that the immediate effect on economic growth would be limited, describing the near-term impact on real GDP growth as “modestly negative.”
The economist outlined three potential scenarios for oil prices. In the first, a short-lived conflict would allow U.S. benchmark West Texas Intermediate (WTI) crude to fall back to around $60 per barrel. A second scenario assumes a longer conflict that keeps prices “more than $100 for the next few months.” The most severe scenario would involve lasting damage to energy infrastructure, pushing crude prices “toward $150 per barrel for at least six months.”
Recent market movements—including a sharp drop toward $80 per barrel—suggest the first scenario may currently be the most likely outcome, Capital Economics said. Nevertheless, the analysis focuses on the second scenario, where WTI averages roughly $100 for the remainder of the year.
Under those conditions, Brown expects headline consumer inflation to rise from 2.6% in January to about 3.3% by December. Core inflation would also edge higher, partly because energy-sensitive sectors such as airline travel tend to pass through higher fuel costs.
Consumer spending would likely slow as a result of higher fuel costs, but Brown believes the effect would be relatively limited.
Even with inflation rising, Capital Economics argues that the Federal Reserve would probably pause interest-rate cuts rather than move back toward tightening policy—unless oil prices surged closer to $150 per barrel. In that case, some policymakers with more hawkish views might advocate for “one or two ‘insurance hikes’.”