For months, there has been steady consensus that higher oil prices are a negative for the U.S. economy, and that lower oil prices would be a positive for the U.S. economy. At the very least, the struggling U.S. consumer would find some relief at the pump and the U.S. stock market might revive itself.

Maybe not. Econbrowser - one of the best economics blogs on the Web - takes issue with that sort of thinking, arguing that lower oil prices may not have as great an impact as one might think on the U.S. stock market:  "The main effect of falling oil prices is likely to be that the Fed holds a bit longer at the current 2% fed funds target before trying to make a move in either direction." 

As Econbrowser points out, the important point is determining why oil prices fell in the first place. The answer just might be lower-than-anticipated growth in Europe and Japan. If that's the case, lower oil prices could actually be a harbinger of bad economic news, rather than good economic news:

"But really the key question for purposes of assessing the economic consequences of falling oil prices is, Why did oil prices fall? To the extent that it is due to the increased global oil production that we've been anticipating, that is unambiguously good news for an oil importer like the United States. But I'm persuaded that another key cause of oil's recent plunge has been economic weakness in Europe and Japan, which has meant both a stronger dollar and weaker global oil demand.

And weakness in global economic growth is a real threat to the U.S. economy. Exports are the one sector that seemed to keep the U.S. economy going in the second quarter. If you kick out the leg of a one-legged stool, prospects for stability are not too great."

In a previous blog post, a number of TradeKing community members shared their views that the price of oil would soon regain its upward momentum, due to the greater demand from emerging market nations (especially China). However, Econbrowser seems to be hinting that the price of oil is actually in a tug-of-war between the greater demand from China and the lower demand from Europe and Japan.

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[image: Oil Well from Wikimedia]