Federal Reserve chairman Janet Yellen believes low crude oil prices are a net positive for the American economy, she said during congressional testimony Wednesday.
“Household spending has been supported by steady job gains and solid growth in real disposable income–aided in part by the declines in oil prices,” stated Yellen. “Economic growth could also exceed our projections for a number of reasons, including the possibility that low oil prices will boost U.S. economic growth more than we expect.”
Yellen estimated cheap gasoline would save Americans a lot of money, saying “for the average American household we’re looking at savings of $1,000 a year.”
Americans spent $370 billion on gasoline in 2014, meaning even small decreases in the price of gas are equivalent to huge sums of money for the average consumer. The huge drop in gas prices is equivalent to $102 billion in savings for the country. The average American household likely saved $700 to $750 at the pump in 2015, according to analysis by the Energy Information Administration (EIA).
Yellen observed that the negatives of cheap oil have been primarily focused on the oil industry and oil-producing countries such as Venezuela. By contrast, the positives she discussed apply to the entire economy, indicating that the Federal Reserve sees low oil prices as primarily a good thing.
Federal government energy experts are predicting gas prices will remain below $2.00 a gallon for the year — the lowest projection for gasoline prices since 2004.
Most economists agree low prices at the pump are also enormously beneficial to American households, which tend to use cash not spent on gasoline to save more or pay down debt. Others claim the extra money is spent on luxury goods, such as dining out at restaurants. Cheap gasoline disproportionately helps poorer families and other lower-income groups because fuel costs eat up a larger share of their more limited earnings.
The EIA is predicting the average American gasoline price will be $1.98 per gallon in 2016 and $2.21 per gallon in 2017. In comparison, the average cost of gasoline in 2015 was $2.43 per gallon. The average gas price in the United States is currently $1.73 per gallon, according to the American Automobile Association (AAA).
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