Two top Federal Reserve policymakers said Monday that falling oil prices will help the U.S. economy even though the drop adds to concerns about low inflation.
As the cost of energy tumbles -- the average nationwide price of a gallon of regular unleaded gasoline is below $3 -- consumers will have more money to spend, said William Dudley, president of the Federal Reserve Bank of New York.
Lower energy prices are a "positive development" for the U.S. and world economies, he said in a New York speech.
The price of the benchmark U.S. crude oil has fallen by more than 30% over the past six months.
It dropped to $66.15 a barrel on Friday -- the lowest price since the Great Recession -- after OPEC ministers decided against reducing production to ease a global oversupply.
The price bounced back Monday, rising about 4% to about $69 a barrel.
In the short term, lower prices for oil and other energy "will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending," Dudley said at Bernard M. Baruch College.
Lower-income families will benefit more because energy costs are a higher portion of their expenses. And those families, which often live paycheck to paycheck, "have a higher tendency to spend any additional real income," he said.
"As a result, much of the boost to real household income from falling energy prices is likely to be spent, not saved," Dudley said.
Fed Vice Chairman Stanley Fischer echoed some of those sentiments in an appearance Monday at the Council on Foreign Relations.
Fed officials have been concerned that inflation is running below the central bank's target of 2% a year.
Consumer prices were flat in October compared with September, largely because of lower energy costs, the Labor Department said. Gas prices were down 3%, their fourth straight monthly decline.
Overall consumer prices were up 1.7% last month from October 2013.
During a question-and-answer session, Fischer said he wasn't worried that falling oil prices would push inflation down further.
The effect of the lower prices will be temporary and is likely to increase economic output rather than reduce it, Fischer said.
"We'll have a short period, and I hope it sticks there, of declining prices," he said.