Macro Musings – From the Strait to the Street in the US
Falling oil prices offer relief, but slower wage growth and delayed pass-through will limit the impact on consumers
Reports that Iran has reopened the Strait of Hormuz are welcome news for oil markets, though the ceasefire’s durability remains an open question.
Crude prices plunged Friday, and while retail gasoline will eventually follow, the pass-through will be neither immediate nor dollar-for-dollar. Still, the prospect that the price spiral is nearing its end offers real relief to motorists heading into peak driving season.
The timing matters, because worker purchasing power has been steadily eroding. With hiring stagnant, wage growth slowing, and real earnings flat since last May, employees are spending more working minutes just to fill their tanks – currently 7.7 minutes at the nationwide average of $4.23 a gallon. Should hostilities reignite, that figure would climb sharply, this time without the robust labor market that cushioned the blow after Russia’s invasion of Ukraine.
For the Fed, a sustained resolution would ease pressure on both sides of its dual mandate, opening the door to rate cuts later this year — though the lagged response of falling gas prices makes an earlier move less likely. A rebound in activity need not alarm inflation hawks: manufacturing utilization sits at 75.2 percent, well below its long-run average, productivity gains are restraining labor costs, and AI promises to reinforce that disinflationary trend going forward.
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