The economy in 2016 will all be about value of Oil and the US$. As oil goes down the energy sector which has been the source of a large portion of growth in the U.S. For the last so many years. Last year when oil went down people figured the drop would be offset by a rebound in consumer spending from lower gas prices which didn’t happen.
This year analysts are more skeptical of a consumer rebound so oil dropping is just all in all bad for growth.
So as the fed begins to hike rates at a slow pace the dollar begins to strengthen putting further downward pressure on the value of oil which is generally priced in dollars in international markets. Some other things to consider is the supply of oil…
So while the issue of supply spells a drop in Oil prices (which Goldman predict will floor at 20/barrels) the story of global demand is dire one as well as analysts generally don’t expect a huge surge in global demand to meet the growth in supply.
This can be followed by following the spread between the 2 year and 10 year treasuries which is an indicator of economic expectations (the spread will widen as economic expectations improve). The price of oil is seen to be very correlated to this spread.
Another thing to factor is that Japan may not ease as much as expected which may slow down the momentum for the dollars rise as markets begin to predict when the next rate hike will occur.
Basically… as oils go down so expectations of U.S. Economic Growth, and as the dollar rises oil will drop.
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