American consumers are closing out 2025 with a double dose of economic relief as a significant drop in fuel costs converges with the Federal Reserve’s third consecutive interest rate cut.
A Historic Drop At The Pump
While the central bank works to engineer a soft landing for the labor market, the energy sector is delivering immediate disinflationary help, offering households significant breathing room just in time for the holidays.
The most tangible relief is visible at the gas station. The national average price for gasoline has fallen to $2.85 per gallon, marking a new multi-year low not seen since March 12, 2021.
According to Patrick De Haan, head of petroleum analysis at GasBuddy, this decline is yielding weekly savings of nearly $400 million compared to the same time last year.
“For the third straight week, the national average price of gasoline has fallen,” De Haan noted, attributing the drop to increased refinery output and persistent concerns about slowing global demand in China and Europe.
With crude oil prices softening—WTI recently traded 0.76% lower near $56.24 per barrel—De Haan predicts the downward trend could continue into the final days of 2025.
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Fed Easing Meets Caution
While pump prices tumble, the Federal Reserve has moved to lower borrowing costs. On Dec. 10, the Fed cut its benchmark rate by 25 basis points to a target range of 3.5% to 3.75%. This marks the third straight reduction, aimed at supporting a cooling labor market.
However, the path forward for rates is less certain than the trajectory of gas prices. Following the cut, Chair Jerome Powell signaled a shift to a “wait and see” approach, dampening hopes for an immediate follow-up reduction in January.
Markets are currently pricing in a 75.6% chance that the Fed will pause rate cuts early next year, as per the CME’s FedWatch tool, to assess economic data.
Macro Outlook
This combination of cheaper money and cheaper energy creates a unique tailwind for the economy heading into 2026.
While the Fed debates the timing of future cuts to avoid reigniting inflation, the collapse in oil prices is doing much of the heavy lifting for them—lowering headline inflation and freeing up disposable income for consumers when they need it most.
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, closed lower on Monday. The SPY was down 0.15% at $680.73, while the QQQ declined 0.50% to $610.54, according to Benzinga Pro data.
The futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were trading lower on Tuesday.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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