"OPEC's Loss is The Economy's Gain," BusinessWeek, November 5, 1984. p. 319

 

Basic Argument:

 

            Lower oil prices could reduce interest rates by allowing the Federal Reserve to pump out more money and reduce inflationary risks. 

 

Summary:

 

            During this period, OPEC’s price structure was beginning to crumble, and along with it, oil prices.  The prospect of lower oil prices offers immediate benefits including lower interest rates, needed to stimulate a sagging economy, lower inflationary expectations in the financial markets, and more ability for then Fed Chairman Paul A. Volcker to ease more money into the economy.  With the inflation outlook appealing, the Federal Reserve has more ability to pump money into a sagging economy without as much concern from the financial markets.  Since OPEC first began the energy crisis more than a decade ago, they have had basic control until now.  Due to inflationary control, conservation programs, and alternate sources of supply industrialized nations are gaining the upper hand and keeping a downward pressure on prices.  Also, slowing growth at home and in other industrialized countries are keeping prices lower.  Economists argue whether Volcker has, should, or will ease the money supply in response to the crumbling oil price structure.