Darius Dale, founder and CEO of 42 Macro, discusses whether the Fed’s rate cuts will impact a resilient U.S. economy on “Mornings with Maria.”
Gas prices tend to rise during the peak summer driving season, but Americans may be in luck this year.
As domestic demand and supply conditions eased, Gasoline prices Gasoline prices peaked at a high of $3.67 a gallon in mid-April and are expected to continue to fall in the coming weeks, according to a new analysis released by RSM Chief Economist Joe Brusuelas.
“Looking at wholesale gasoline prices, there is room for domestic gasoline prices to fall another 10% from the current $3.44 a gallon,” he wrote. “This would certainly bolster U.S. household balance sheets heading into the summer spending season.”
The average price for a gallon of regular gasoline was $3.44 on Wednesday, down about 4% from a month ago, according to AAA. Prices are expected to fall further as demand slumps and consumers cut back on spending amid continuing inflation and surging supply.
Rents have stagnated, suggesting high inflation may continue
An Amoco gas station in Washington, DC, on November 28, 2023. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)
“Gasoline demand has been below 2023 levels for much of this year, and analysts believe economic uncertainty could curb demand this summer,” said AAA spokesman Andrew Gross. “So is the normally active summer driving season a thing of the past? Or is gasoline demand just taking longer to recover? We may not know until the fall.”
The fall in gasoline prices is Relentless price increases It has been going on for more than three years.
While inflation is down significantly from a peak of 9.1% recorded in June 2022, it remains above the Federal Reserve’s 2% target. And prices are up nearly 20% since January 2021, just before the inflation crisis began.
High inflation Severe financial pressures Most American households face high costs for everyday necessities like food and rent, and rising prices are especially devastating for lower-income Americans, who tend to spend more of their already tight paychecks on essentials and therefore have less flexibility to save.
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Consumers are also struggling with high interest rates as the Federal Reserve sharply raises them to 20-year highs in 2022 and 2023. Slow down the economy And inflation is treading water. Policymakers are now wondering when to take their foot off the brake.
Traffic on the 405 Freeway in Los Angeles, California, on April 2, 2024. (Photographer: Eric Thayer/Bloomberg via Getty Images/Getty Images)
Brusuelas said lower gasoline prices could lead to lower inflation, which in turn could support the argument for rate cuts later this year.
“Perhaps more importantly, lower gasoline prices will affect the inflation measures the Fed uses to set policy,” Brusuelas wrote. “Lower gasoline prices will suppress top-line inflation, which would support rate cuts this fall.”
U.S. crude production is about 13.2 million barrels per day, Brusuelas said, just below the all-time high of 13.3 million barrels recorded in December 2023. While the coalition of oil-producing nations known as OPEC+ has tried to rein in supply by cutting production, new supplies are still flowing into the market thanks to non-OPEC producers such as the U.S., Canada, Norway and Brazil.
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“In our estimates, there is a risk of further supply coming onto the market, which means lower oil and gasoline prices towards the end of the year,” he said.
