How do you feel about the fact that gas prices are tied to the lowering of intrest rates by frederal reserve?

Question

Apparently when the intrest rates go down even as little as a quarter point, crude oil increases by Four dollars. and the interest rates have dropped seven times since Sept. 2007. Does anyone realize that crude prices are related to the dropping of the U.S. dollar on the world market.

Answer 1

You need look no further than the Middle East situation as the instability grows daily

Answer 2

I have to respectfully disagree with your analysis of the current economic condition.  While it is true that oil prices have risen and the Fed had attempted to bolster capital investment by lowering rates and keeping money flowing freely, they're not closely related.

Oil is rising in price because it's tied to the strength of the American dollar.  If the dollar is weak, as it is now, oil prices, and in fact all commodity prices, rise.  The dollar is weakening because of the debt the federal gov't has incurred as a result of military actions and defict spending.  Inflationary risk weakens the dollar as well.  Point in case, prices of oil dropped earlier this week when the Fed announced it would only drop the overnight rate by 25 basis points and no further cuts were planned.  This signaled to investors that the dollar won't be suffering from inflation and should begin to recover before too long.

The geopolitical tensions around the world are having as profound an effect on oil prices as financial stability.  Look back prior to the banking crisis, which spurred the interest rate drops.  In 1999, the average price of a barrel of oil was $16.  During 2007, it averaged about $65.  That's a 300% increase, even with the Fed increasing rates most of the time to avoid inflationary spending.

EDIT:  Isn't it possible your views are tainted?  I've provided data to back up my position, whereas you only claim to have heard this information on news broadcasts.  Here's an article from the Cato Institute that appeared in the Washington Post April 24th indicating that interest rate drops are a response to increasing oil prices (whereas you indicate that oil price hikes are a response to interest rate adjustments), as well as other economic indicators such as the banking crisis having a much larger effect on the Fed's policy actions:  http://www.cato.org/pub_display.php?pub_...

Of course there's a causal effect, the lowering interest rate weakens the dollar, which reduces purchasing power.  But your relationship isn't valid.  Oil is rising globally, even in nations where interest rate reductions aren't occurring.  You're oversimplifying a complicated interplay of market forces.  Incidentally, the last quarter point drop was accompanied by a drop in oil prices.  It wasn't until Goldman Sachs predicted $200/barrel oil and Nigerians bombed production pipelines that oil prices spiked.

I welcome your response.