Fed Chairperson Janet Yellen tried to say that on balance that the drop in crude oil prices was a good thing. She said it was a net positive for the U.S. economy even if they weigh on inflation. "It's good for families, for households. It's putting more money in their pockets," she said. Yet with all of the global fallout, with the ruble collapsing and with substantial stress in the junk bond market and talk of layoffs in the energy space, is the Fed really not seeing the other side of this?
After taking a question from Fox Business Network's Peter Barnes, she had to acknowledge that the crash in the oil price may be a bit more of a concern than they wanted to really acknowledge. Yellen, when pressed by Barnes, had to say that the Fed was "monitoring potential spillovers" to the U.S. economy from the turmoil in Russia, which Yellen said "has been hit very hard by the decline in oil prices, and the ruble has depreciated enormously in value." She said the trade and financial linkages to Moscow are "relatively small even though Europe is somewhat more exposed to Russia." Europe, though, is "somewhat more exposed to Russia."
Yellen also acknowledged risks to more financially leverage in the energy space. She also had to acknowledge that lower oil prices could lead to "reduced drilling activity" and less capital investment in domestic production efforts not to mention jobs and a potential hit to U.S. Gross domestic product. We are seeing reports that the sell-off in energy could knock off up to 1% GDP and cost 375,000 jobs directly then of course the fallout to related industries and so on.