Experts: Oil prices burden budgets
Costs slowing economy, say Greenspan, Bush adviser
Washington ? High oil prices could crimp – but not derail – economic growth this year, Federal Reserve Chairman Alan Greenspan suggests.
Greenspan, in a letter to lawmakers released Monday, said the rise in oil prices since the end of 2003 probably shaved economic growth by around three-fourths of a percentage point this year after having reduced growth by about one-half point last year.
The economy grew by 4.4 percent last year, the strongest performance since 1999. Private economists believe this year could clock in around 3.5 percent, a slower but still healthy pace.
Referring to the drag from the higher oil prices, Greenspan said, “Aside from these ‘headwinds,’ the U.S. economy seems to be coping pretty well with the run-up in crude oil prices.”
Greenspan’s thoughts on oil were contained in a letter to Congress’ Joint Economic Committee. The letter provided Greenspan’s written responses to questions that were submitted to him after his June 9 appearance before the panel.
Separately, Ben Bernanke, the new chairman of the White House Council of Economic Advisers, said Monday that high oil prices were having an impact on family budgets but he believed the effect on the overall economy was modest.
Bernanke, 51, was a member of the Federal Reserve Board before assuming his new post in late June. He frequently is mentioned as a possible successor to Greenspan, who is expected to step down early next year.
“High oil prices certainly have been a problem for Americans,” said Bernanke. “They are a burden on family budgets. They raise costs of production and reduce profits for firms.”
Greenspan made a similar point. He said higher inflation spurred by rising energy prices has reduced households’ purchasing power and slowed spending. Businesses, he said, “seem to have reassessed the profitability of some investment projects in the light of significantly higher energy costs.”