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Gasoline prices now are about 20 cents per gallon below their mid-year highs, and crude oil prices are down significantly from their mid-August highs. But we’re certainly not out of the woods, and the oil price outlook is highly uncertain. Indeed, concerns about long-term supply are growing rather than receding, and there are large prospective increases in demand associated with the rapidly growing economies of both China and India. As a result, prices of distant oil futures are well above their ranges of recent years.

NAHB’s forecast assumes some further reductions in prices of oil and gasoline during the next year and a half. If these reductions do not materialize, the Fed probably will alter its path back to monetary neutrality in order to keep the economic expansion going at a solid pace.

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