When will oil be too expensive?
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What has caused the recent spike in crude oil prices?
There's a lot going on right now. Mounting economic inequality, threats to democracy, environmental disaster, the sour stench of chaos in the air. I'm Brooke Gladstone, host of WNYC's On the Media. Want to understand the reasons and the meanings of the narratives that led us here and maybe how to head them off at the pass? That's On the Media's specialty. Take a listen wherever you get your podcasts.
The Fed's job was complicated enough before the war. From American Public Media, this is Marketplace.
In Denver, I'm Amy Scott, in for Kai Risdahl. It's Monday, March 16th. Good to have you with us. It is Fed Week, meaning the committee that guides short-term interest rates in this economy will meet starting tomorrow to discuss the state of that economy. We'll get its decision on the federal funds rate on Wednesday. The last time the Fed changed that rate with a quarter-point cut was December 2020. Then we got a pause in January, and most analysts expect the Fed to hold rates steady this time, too. Marketplace's Kristen Schwab looks at why and what officials will be watching for in the months ahead. Between elevated inflation and a shaky job market, the Federal Reserve had already been setting the stage for an interest rate hold.
Former Fed Governor Randy Crosner says now with the war, the hold is basically cemented here and around the world.
Almost every major central bank is having a meeting this week, and I think almost all of them are going to stay on hold.
Uncertainty forces economies to stop, observe, and recalibrate, says former Fed advisor Ellen Mead.
If an oil shock or something very similar to it is short-lived, probably the best thing a central bank can do is just wait.
Wait to see how long the war lasts. And wait to see how deeply oil prices affect other prices. Because expensive oil... It's a stagflationary shock.
Pricey gas could make consumers pull back on other spending, which would slow down the economy.
Pricey gas could also make goods more expensive and push inflation up.
Now, usually, central bankers write this kind of shock off as a one-time thing, as transitory. You know, that language has sort of been tarred and feathered, I think, by the experience during the pandemic. Back then, the Fed insisted inflation was transitory. But it ended up peaking above 9 percent and still hasn't come all the way down to the target rate of 2. David Wessel, a senior fellow at the Brookings Institution, says the Fed has to use different messaging this time.
How is the Federal Reserve responding to economic uncertainty?
They can't count on people being so calm about inflation because we've had inflation in recent memory.
If people already believe inflation is likely, it could drive more inflation. And Wessel says that possibility is enough for the Fed to be more hesitant than usual about cutting rates in the coming months. I'm Kristen Schwab for Marketplace.
A surprisingly buoyant day on Wall Street today. We'll have the details when we do the numbers.
President Trump continues to pressure U.S. allies to help open the Strait of Hormuz, which Iran has effectively closed in response to U.S.-Israeli strikes. About 20 percent of the world's oil supply typically passes through the shipping channel. The price of Brent crude closed above $100 a barrel today for the third straight trading session as the president's war in the Middle East entered its third week. For context, just a few weeks ago, that price was around $70. As Marketplace's Justin Ho reports, drivers are largely taking the recent spike in stride. But for how much longer?
Economists describe demand for oil as inelastic. When we say inelastic, what we mean is that demand doesn't change very much in response to price.
That's George Perks at Bespoke Investment Group. He says energy is getting more expensive, but people can't really do much about it.
What am I going to do instead? Am I going to drive less? Well, most of what I'm doing to drive, I can't really avoid. I can't avoid my commute to work. I can't avoid picking my kids up from school or going to the grocery store.
That said, there is a point where the price of oil gets so high that people actually start to pull back.
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