Bank of America: US macro risks "may be limited unless oil prices surge significantly"

Investing.com - The conflict between the U.S. and Iran has attracted global market attention, but analysts at U.S. banks say that the overall risk to the U.S. economy remains manageable at this time.

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U.S. bank analyst Meghan Swiber stated in a research report that, despite recent developments, the company’s baseline forecast for the U.S. economy has not changed significantly.

Swiber wrote, “We believe that unless oil prices surge sharply, macroeconomic risks in the U.S. may be limited.” She pointed out that the main recent impacts could be on the timing of Federal Reserve rate cuts and the dollar’s movement.

Oil prices remain the key transmission channel for any macroeconomic impact.

According to U.S. banks, a common rule of thumb suggests that a $10 increase in crude oil prices could raise personal consumption expenditure inflation by about 0.1 percentage points, while GDP growth may decrease by a similar margin.

Swiber wrote, “The Federal Reserve estimates that a 10% increase in oil prices would cause PCE inflation to rise by about 10 basis points in the short term.” However, she added that this effect usually dissipates within a year because higher energy costs tend to suppress demand for other goods and services.

U.S. banks also noted that the U.S. economy is less vulnerable to oil shocks than in the past, as the country is now a net exporter of oil and natural gas, meaning that rising prices can benefit domestic producers to some extent.

Looking ahead, the Federal Reserve is expected to remain cautious. Swiber said the Fed may adopt a wait-and-see approach to assess whether higher oil prices translate into broader inflation or growth slowdown.

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