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Moody’s Expert Warns About Threat to US Economy

Currently, the United States economic system is on a growth trajectory, being backed by favorable circumstances such as high consumer spending and a positive labor market situation, but this does not mean that there are no risks to the positive dynamic nowadays.

Moody’s Expert Warns About Threat to US Economy

Rising oil prices may become a factor that will disrupt the mentioned well-being in the foreseeable future. Mark Zandi, chief economist at Moody’s, said during a conversation with media representatives that this is the most significant threat to the specified positive dynamic. According to the expert, nothing damages the economy as quickly as oil prices, which are on a growth trajectory. It is worth noting that this circumstance of the external environment can also have negative political consequences. For the leadership of the United States, an unfavorable scenario would be a situation in which gasoline prices exceed the $4 per gallon mark and remain at the appropriate level. Such a state of affairs will become a large-scale factor impacting the financial situation of citizens.

In the United States, oil prices are rapidly approaching the $90 per barrel mark. World prices for so-called black gold may rise to $92 in the foreseeable future. This tendency was formed against the background of concerns about the geographical scaling-up of the fighting in the Middle East. The increase in gasoline prices has reached its highest level in the last five months.

For the United States, from the point of view of economic prospects, the risk lies in the continuation of the process of oil price appreciation. If this scenario of the near future becomes an objective reality, local consumers will be forced to reconsider their expenses. This will hurt the economy. Also, the continued rise in oil prices will largely cancel out the results of Washington’s progress in countering inflation. If the corresponding version of the future is implemented in the space of the material being, the Federal Reserve will postpone lowering interest rates. The relevant actions of the financial regulator of the United States will have a negative impact on the mood of Wall Street investors.

Mark Zandi says that rising gasoline prices above the $4 per gallon mark and maintaining this level of cost for more than two or three months will significantly increase the chances of Donald Trump in the presidential election.

At the end of last week, US oil rose to more than $87 per barrel. The mentioned mark was recorded for the first time since October 2023. Since the beginning of 2024, oil prices in the United States have increased by about 21%.

Mark Zandi says that the US economic system will cope with the price of the mentioned mineral at $85 or $90. According to him, the rise in oil prices to more than $90 and the indicator’s approach to the $100 mark will become a problem. Mark Zandi said that under such a scenario, consumers would find themselves in a difficult position. In this case, lower-income households will face the greatest problems. Mark Zandi noted that people look at gas prices as a litmus test for assessing their financial situation.

The subsequent dynamic of oil prices will be determined by event progression in the Middle East. In this context, an important circumstance is how Iran will react to the airstrike carried out last week on the embassy complex of this country in Syria. Iranian officials have promised to take action against Israel regarding the incident.

Andy Lipow, president of Lipow Oil Associates, says that the likelihood of oil supply disruptions is increasing. Iran’s retaliatory strike was mentioned in this context. Andy Lipow said that the probability of a rise in the price of Brent oil to $95 is realistic. It is worth noting that new events of a geopolitical scale in the Middle East may form a situation in which the $100 mark may become the most favorable indicator of all possible.

Helima Kroft, a former CIA analyst who now heads global commodity strategy at RBC Capital Markets, says that the cycle of mutual claims in the mentioned region may at some point provoke a large-scale conflict. This potential scenario will be a factor in rising oil prices.

Joe Brusuelas, chief economist at RSM, also is in the position that for the United States, the biggest external risk is geopolitical tensions in the Middle East. In this case, the economic impact is implied. Tensions in the Middle East are a potential catalyst for rising oil and gasoline prices. Joe Brusuelas says that the situation in the mentioned region is the only thing that can stop the current business cycle shortly. According to the expert, a recession will become a realistic scenario for the economic system of the United States, when oil prices are in the range of $115 to $130.

AAA data shows that at the end of last week in the US, gasoline prices rose to $3.58 per gallon on average across the country. This figure is 4 cents higher than the indicator recorded a week earlier. Gasoline prices have increased by 21 cents in a month.

Oil and gas prices have also been boosted by OPEC and its allies, which continue to restrain supplies. Seasonal factors are so too important in this case. Gasoline prices traditionally show an increase in spring. This feature is because refineries are starting to use more expensive summer fuel. Moreover, the number of people hitting the roads is increasing. This circumstance increases the gasoline demand.

Vincent Reinhart, chief economist at Dreyfus and Mellon, said in a comment to the media that the risk of increased inflation is growing due to the rise in prices of goods, including commodities.

Patrick De Haan, head of petroleum analysis at GasBuddy, expects gas prices to average around $3 if a major hurricane does not cause damage to refineries in the United States. According to the expert, an increase in the price of gas to $ 4 per gallon is not imminent.

As we have reported earlier, JPMorgan CEO Hails US Power in Letter to Investors.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.