Two of the most important numbers for the U.S. and global economy are the Federal Funds rate and the price of WTI Crude Oil. The Federal Funds rate is the central interest rate in the U.S. financial market. It's set by the Federal Open Market Committee (FOMC) eight times per year and influences a variety of other interest rates – such as mortgages, loans, and savings – that affect companies and consumers. Therefore, the Fed Funds rate is a key measure and driver of economic health in the U.S. as well as around the world since it influences the value of the U.S. dollar.

The price of WTI Crude Oil is another important piece of economic data. Crude oil is said to be the King of Commodities since its price can drive price trends throughout all other commodities. Consider miners or farmers who rely on crude oil products to power their vehicles, produce their products, and move them to buyers – the price of crude oil impacts their costs significantly. Oil prices can also impact consumer demand for energy. For example, if gasoline prices are high, people often drive less or look for a more fuel-efficient car. When jet fuel prices are high, airlines raise ticket prices and people may fly less.

The price of WTI can be a major driver of inflation, which is a significant factor the Fed looks at when determining the Fed Funds rate. Since the cost of energy drives the cost of most goods and services in the economy, high oil prices make manufacturing more expensive, making it costlier for shops and businesses to stay in business. These costs are passed on to the consumer which raises inflation in the economy. If the Fed decides inflation is moving too high, then it will look to reduce demand in the economy by increasing interest rates, reducing the amount of money consumers and companies have to spend.

When oil analysts look to predict future price trends for WTI, they'll also pay close attention to the performance of the stock market. A healthy stock market often indicates a strong economy, suggesting that demand for oil will be strong. Another consideration is the type of economy: high oil prices are good for producer economies like Saudi Arabia or Russia but can be bad for economic growth in consumer economies like China, India, and western Europe.

The strength of the U.S. dollar is another factor to consider since crude oil is priced in USD. More WTI continues to be exported to Asia and Europe, meaning buyers must convert their local currency into USD in order buy oil. The stronger the U.S. dollar is relative to the local currency, the more expensive it is for other countries to import crude oil which ultimately impacts demand.

All markets are influenced by each other. As one of the most important inputs in determining economic performance, it's no surprise that crude oil's relationship with interest rates, the stock market, and the U.S. dollar are so crucial and complex.

Interested in learning more?

• For more information about the transatlantic crude trade, check out this case study.
• To further your understanding of supply and demand and how it can inform your decision-making regarding oil and other products, head to the Fundamentals and Energy Futures lesson.