I believe the American economy’s fate near term will be mainly determined by the Saudi-Russian power play in the making. If Saudi Arabia drifts out of America’s orbit, our ability to avoid financial collapse will be difficult if not impossible.
Low oil prices have indeed kept inflation today down, allowing the Fed to continue stalling on a normalization of U.S. interest rates. A rise in oil prices likely would result in increased inflation. This would remove a crucial public excuse, enabling the Fed to justify zero interest rates.
I have been arguing for many years now that the Fed will not normalize interest rates, other than a possible token 0.25 percent until forced to do so by market forces. I think those market forces are already in play and will be more so with a Russian – Saudi close collaboration on oil prices.
How dependent are Russia and Saudi Arabia from each other?
It is clear to everyone today that Russia’s finances have been devastated by the drop in crude prices and by the U.S.-led NATO sanctions imposed for the Ukraine incursion. To maintain its viability, Russia must seek to push up the price of oil by any means at her disposal.