US Government admits

Connecting the Dots has said right along that the price of oil is a significant factor in the health of the US economy. The fact that this is the first time the US government has finally admitted how vulnerable the US is to the price of oil is the real story.

Connecting the Dots has long said that $100.00 per barrel of oil is the red line on how much the economy could absorb before it started to tank again. The mention of the problems in Japan as fallout from a massive natural disaster are secondary and only affect certain areas like cars. The price of oil is across the board. We don’t want to make this a ‘Told you so’ post, but unfortunately no matter how we try to flavor it another way, that is how it will come across.

WASHINGTON – The economy has weakened in recent weeks, Federal Reserve Chairman Ben Bernanke noted Tuesday. But he stuck with a message he’s delivered since April: The slowdown from high gas prices and Japan’s crises is temporary, and growth should pick up later this year.

Bernanke made no mention of any new steps the Fed might take to boost the economy. The Fed’s $600 billion Treasury bond-buying program is ending this month. The program was intended to keep interest rates low to strengthen the economy. But critics said it raised the risk of high inflation.

The Fed chairman said the economy still needs the benefit of low interest rates. The Fed is scheduled to meet in two weeks and is all but certain to keep those rates at record lows.

Stocks fell after Bernanke began speaking. The Dow Jones industrial average erased gains made earlier in the day and closed down for the fifth straight day, as did broader indexes.

“The market was disappointed,” said David Jones, head of DMJ Economic Advisors, a private consulting firm. “Wall Street investors were hoping for the promise of another round of credit easing, and they didn’t get it.”

Bernanke noted the May jobs report released last week was a setback. It showed the unemployment rate ticked up to 9.1 percent and the economy added just 54,000 jobs, the fewest in eight months. But he said he expected job creation and overall economic growth to rebound in coming months.

“The economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers,” he said at a banking conference in Atlanta.

Bernanke said the central bank would not consider the recovery well-established “until we see a sustained period of stronger job creation.”

He repeated a pledge that central bank officials have been making for more than two years: that they will keep interest rates at record lows “for an extended period.”

Bernanke said that consumer inflation has jumped 3.5 percent in the six months ending in April — well above the average of less than 1 percent over the preceding two years. But he noted that most of the increase had been caused by higher gas prices, which have been creeping down in recent weeks. Excluding food and energy, inflation has been tame, he noted.

He also noted that supply disruptions stemming from the March earthquake and tsunami in Japan have hampered growth in the April-June quarter. But he said the effect on manufacturing output will likely ease in the coming months.

Bernanke disagreed with critics who say the Fed’s policies are raising inflation risks by weakening the dollar and contributing to the jump in oil and commodity prices. He said that slow growth in the United States and a persistent trade deficit were the fundamental reasons for the dollar’s decline, and not the Fed’s interest rate policies.

Jamie Dimon, CEO of JPMorgan Chase & Co., asked Bernanke if he was concerned that rules from last year’s financial overhaul law will take effect just as the economy is slowing.

Bernanke responded that the worst financial since the Great Depression “revealed a lot of weak spots” that needed to be addressed. But he said regulators were trying to make sure financial institutions would not be overburdened with costs to meet the rules.


Comments are closed.