The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
May 11, 2006
Oil Or Money?
This comes from David Wessel, in today's Wall Street Journal (page A3 in the print edition):
So far, the global economy and the U.S. economy, in particular, are shrugging off higher oil prices. The latest forecasts, most of which assume oil prices will fall a bit from current levels, predict reasonably strong economic growth for the rest of the year...
But a lot turns on the response of the U.S. Federal Reserve and other central banks. History demonstrates that a sharp increase in oil prices is economically toxic when accompanied by a sharp increase in short-term interest rates. Fed Chairman Ben Bernanke knows his history and vows to avoid repeating it.
Below is a picture I (and many others) have shown before. The arrows represent episodes in which the relative price of energy -- the energy component of the consumer price index divided by the price index for all other goods and services -- increased by at least 10%. The shaded bars represent NBER recession dates.
Here is a similar picture, with the federal funds rate substituted for the energy price series. (The arrows are preserved for reference):
Hmmm. Sure enough, every energy-price spike has a downturn in the economy in the near temporal vicinity. But every energy-price spike is likewise associated with a run up in the funds rate.
Should we be worried? Wessel continues:
"The crucial difference from the 1970s, in my view, is that today, inflation expectations are low and stable," Mr. Bernanke said. "As a result, the Fed has not had to raise interest rates sharply as it did in the 1970s." The key to keeping inflation expectations "benign," he argued, has been "Fed policies that have kept actual inflation low in recent years, clear communication of those policies, and an institutional commitment to price stability."
That does leave the 1990-91 and 2001 episodes sort of hanging there. Nevertheless:
So if we all believe higher oil prices won't spark inflation, the Fed won't have to raise interest rates so much to squelch inflation. If the Fed doesn't raise rates too much, the slow-motion supply shock won't provoke a slow-motion recession. Let's hope.
TrackBack URL for this entry:
Listed below are links to blogs that reference Oil Or Money?:
- Contrasting the Financing Needs of Different Types of Firms: Evidence From a New Small Business Survey
- Gauging Inflation Expectations with Surveys, Part 3: Do Firms Know What They Don’t Know?
- Gauging Inflation Expectations with Surveys, Part 2: The Question You Ask MattersA Lot
- Gauging Inflation Expectations with Surveys, Part 1: The Perspective of Firms
- Chances of Finding Full-Time Employment Have Improved
- Exploring the Increasingly Widespread Decline in Involuntary Part-Time Work
- The Long and Short of Falling Energy Prices
- And the Winner Is...Full-Time Jobs!
- For Middle-Skill Occupations, Where Have All the Workers Gone?
- A Closer Look at Employment and Social Insurance
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit