If the recent bearish predictions on oil prices by Wall Street and some commodity giants come true, it could be good news for major central banks such as the Federal Reserve and the European Central Bank. This would reduce the impediments to interest rate cuts for policymakers, increasing the probability of a soft landing.

On Tuesday, the global benchmark Brent crude oil price fell below $70 per barrel for the first time since the end of 2021. The inflationary impact of soaring energy costs has receded enough to give policymakers the green light for interest rate cuts. Since the outbreak of the pandemic, the energy crisis has been a key driving factor in this inflation cycle.

Institutions such as Citigroup and JPMorgan predict that oil prices will fall to $60 per barrel by 2025. Goldman Sachs and HSBC also have bearish views on oil prices, and Tok Group, one of the world's largest commodity traders, expressed agreement on Monday. This forecast could further increase the likelihood of a soft landing for the United States and other countries.

Tim Drayson, the former UK Treasury official and current Economic Director of London Legal & General Investment Management (LGIM), said, "The likelihood of a soft landing will increase - this applies to both Europe and the United States. Overall, this is a net positive for global interest rate decline and will help major central banks return to neutrality."

With strong supply and weak demand, the decline in oil prices is favorable for a decline in inflation.

After adjusting for inflation, the current oil price is at the level of 20 years ago. Analysts from JPMorgan and Citigroup predict that oil prices will further decline next year, as weak demand growth will be offset by a significant increase in supply. Ben Luckock, Global Head of Oil at Trafigura, said at the Asia-Pacific Petroleum Conference in Singapore on Monday that Brent crude oil "may soon enter $60". Another major trader, Gunvor Group, warned that the oil market will "deteriorate".

Weak demand is one of the reasons, especially in the context of the US economy losing momentum and increasing deflationary pressures in Asia. Alicia Garcia-Herrero, Chief Economist for the Asia-Pacific region at Natixis, said that the economic slowdown in major economies around the world may not be structural, but rather cyclical.

Despite signs of weakness in the US economy, its oil industry remains very healthy. The International Energy Agency (IEA) predicts that global oil production will increase by 1.5 million barrels per day in the next two years, driven by US shale oil fields, exceeding global demand growth by about 50%. Although Saudi Arabia and its OPEC+ allies have extended production cuts, this surge in supply is one of the reasons for the continued decline in oil prices.

If oil prices quickly fall to $60 per barrel, a decrease of about $20 since July last year, it will have a significant impact and lasting importance on global consumer prices. The SHOK model designed by Bloomberg shows that such a rapid decline in this magnitude will cause inflation rates in the United States and Europe to decrease by 0.4 percentage points by the end of 2024 and the beginning of 2025.

Drayson from LGIM said that households will notice this difference. He said, "This will be advantageous for consumers in developed markets - it will help curb inflation and increase real income."

However, compared to the impact on consumer prices, its direct stimulus to economic growth may be more moderate. In the case of $60, the SHOK model predicts that the growth prospects of the United States will not change, and the economic growth of the United Kingdom and the Eurozone will increase by 0.2 percentage points.

Hetal Mehta, Director of Economic Research at St James Place and former UK government economist, said, "You will see short-term effects on overall inflation - this will become apparent soon. If inflation is low, the impact on economic growth should be moderate."

Meanwhile, US Treasury Secretary Yellen announced on Saturday that the US situation is "soft landing" as most people say. But concerns about worsening economy and reduced inflation risk have prompted the Fed policymakers to shift to loose policy in the decision on September 18th.

Freya Beamish, Chief Economist at TS Lombard, has anticipated a "soft landing" for the US economy, and she believes that the lower oil prices in the US will stimulate the economy even more, which is a relief. She said in an interview, "This will restore purchasing power to US consumers and help alleviate some of the cracks appearing in the US economy."

Falling inflation reduces the main central banks' obstacles to interest rate cuts.

The recent drop in oil prices has opened up a wider door for loose policies for central banks that are preparing to cut rates this month. ECB officials are expected to announce a second rate cut on Thursday, and it is widely expected that the Fed will start a loose cycle in less than a week.

The European Central Bank will be the first major central bank to face the backdrop of continuously changing oil prices. Its officials are most concerned about the dangers brought by service industry inflation, which is currently more than double the 2% target, but the risks to economic growth are gradually coming into view.

The drop in oil prices will have an impact on the European Central Bank's quarterly forecasts, which are used to guide expectations. In the June release of the quarterly forecasts, officials assumed an oil price of $78 per barrel in 2025, indicating that if the oil price reaches $60, it would indeed have a significant downward impact on their inflation outlook.

The commitment to a $60 oil price - at least for investors and policymakers who believe in it - could further suppress overall inflation rates and boost consumers' disposable income. In a world full of various risks, this is a rare bright spot, including potential trade wars, conflicts in the Middle East, and concerns about global economic weakness.

Christof Ruehl, Senior Analyst at the Columbia University Global Energy Policy Center, said, "This is very helpful, especially for central banks. It eases inflationary pressures, which is exactly what central banks need right now."