In anticipation of war with Iraq, which could lead to unpredictable consequences for the world oil market, the U.S. Fed has no choice but to retain the current value of the interest rates.
Today, many analysts can not get away from a clear sense of «Dejavu». More than a decade ago, when Saddam Hussein waged another war with another George Bush, oil prices, as now, has gone up, has exceeded $ 40 a barrel. At that time the American economy has been the victim of a recession, and the U.S. Federal Reserve was forced to take drastic softening of monetary policy in which interest rates were substantially reduced.
Today, in 2003, we seem to witness a repetition of the events of the past. The recent spike in oil prices, which almost reached the level of the war in the Gulf, calls into question the reality of the early recovery of the U.S. economy. Over the last 12 months oil prices have risen by about 50%. To a large extent, this rise in price due to fear of repercussions for traders new war in the Middle East.
Apparently, this time The Bush Administration has seriously taken a course on the disarmament of Iraq and change the political regime in that Arab country. As a result, the impact of military operations and the subsequent occupation of Iraq could have on the world oil market more lasting impact than it was in the days «The storms in the desert». For the U.S. economy, this means that high oil prices will persist for a sufficiently long period of time during which the U.S. Fed will be forced to keep its interest rates at their current level of about four decades minimum.
However, «Military premium» is no more than half of total prorosta oil prices. In addition to tensions over Iraq, its role in the growth of prices also played a strike in Venezuela, where oil exports from that country dropped sharply, the escalation of Israeli-Arab conflict at the beginning of last year, as well as the activities of speculators, on the slow recovery of world economy after the recent recession and the harsh winter in the United States, causing an increase in demand for fuel. The presence of these factors mean that even a victory over Iraq may not be sufficient for the full decline in prices is not oil. For that to happen, it is necessary or immediate increase in Iraqi oil production, or agreed to market the release of oil from strategic reserves of the Organization of Petroleum Exporting Countries.
Fed U.S. experts have tried to identify the potential effect of continuing high oil prices over a longer period. According to the macroeconomic model of the Fed, higher cost of oil at $ 10 per barrel during the four quarters in a row next year, would reduce real GDP growth at 0.2% and an increase in the consumer price index by 0.5%. But, in fact, over the past year, oil prices rose to $ 20 per dollar. Given that during this period the dollar fell by about 20%, this rise in price of oil could lead to at least 0.5 per cent slowdown in GDP growth and an increase in the consumer price index by about 1%. All this means that the United States could face stagflation - a combination of inflation with slow economic growth.
As these conditions may be the Fed? Unfortunately, today Offices of Alan Greenspan is unlikely to be able to use the recipe for success beginning 1990. In those days, the Iraqi crisis be settled relatively quickly, so that high oil prices are kept for only five months. After the August 1990 Iraq invaded Kuwait, the Fed reduced its federal funds rate by 500 basis points. By November 1992, the rate on federal funds was 3%, then remained at that level for more than a year.
At this time, with no possibility of the Fed to the aggressive reduction of rates: since the end of 2000, the rates were already reduced by as much as 525 basis points today to 1.25%. The collapse of the market high-tech, September 11 attacks, the crisis of American corporate governance and geopolitical tensions have forced the Fed to do to mitigate their monetary policy long before the outbreak of hostilities in the Middle East. It seems that in the foreseeable future in office, Alan Greenspan will not be another possibility but to maintain the current size of bets.
Today, many analysts can not get away from a clear sense of «Dejavu». More than a decade ago, when Saddam Hussein waged another war with another George Bush, oil prices, as now, has gone up, has exceeded $ 40 a barrel. At that time the American economy has been the victim of a recession, and the U.S. Federal Reserve was forced to take drastic softening of monetary policy in which interest rates were substantially reduced.
Today, in 2003, we seem to witness a repetition of the events of the past. The recent spike in oil prices, which almost reached the level of the war in the Gulf, calls into question the reality of the early recovery of the U.S. economy. Over the last 12 months oil prices have risen by about 50%. To a large extent, this rise in price due to fear of repercussions for traders new war in the Middle East.
Apparently, this time The Bush Administration has seriously taken a course on the disarmament of Iraq and change the political regime in that Arab country. As a result, the impact of military operations and the subsequent occupation of Iraq could have on the world oil market more lasting impact than it was in the days «The storms in the desert». For the U.S. economy, this means that high oil prices will persist for a sufficiently long period of time during which the U.S. Fed will be forced to keep its interest rates at their current level of about four decades minimum.
However, «Military premium» is no more than half of total prorosta oil prices. In addition to tensions over Iraq, its role in the growth of prices also played a strike in Venezuela, where oil exports from that country dropped sharply, the escalation of Israeli-Arab conflict at the beginning of last year, as well as the activities of speculators, on the slow recovery of world economy after the recent recession and the harsh winter in the United States, causing an increase in demand for fuel. The presence of these factors mean that even a victory over Iraq may not be sufficient for the full decline in prices is not oil. For that to happen, it is necessary or immediate increase in Iraqi oil production, or agreed to market the release of oil from strategic reserves of the Organization of Petroleum Exporting Countries.
Fed U.S. experts have tried to identify the potential effect of continuing high oil prices over a longer period. According to the macroeconomic model of the Fed, higher cost of oil at $ 10 per barrel during the four quarters in a row next year, would reduce real GDP growth at 0.2% and an increase in the consumer price index by 0.5%. But, in fact, over the past year, oil prices rose to $ 20 per dollar. Given that during this period the dollar fell by about 20%, this rise in price of oil could lead to at least 0.5 per cent slowdown in GDP growth and an increase in the consumer price index by about 1%. All this means that the United States could face stagflation - a combination of inflation with slow economic growth.
As these conditions may be the Fed? Unfortunately, today Offices of Alan Greenspan is unlikely to be able to use the recipe for success beginning 1990. In those days, the Iraqi crisis be settled relatively quickly, so that high oil prices are kept for only five months. After the August 1990 Iraq invaded Kuwait, the Fed reduced its federal funds rate by 500 basis points. By November 1992, the rate on federal funds was 3%, then remained at that level for more than a year.
At this time, with no possibility of the Fed to the aggressive reduction of rates: since the end of 2000, the rates were already reduced by as much as 525 basis points today to 1.25%. The collapse of the market high-tech, September 11 attacks, the crisis of American corporate governance and geopolitical tensions have forced the Fed to do to mitigate their monetary policy long before the outbreak of hostilities in the Middle East. It seems that in the foreseeable future in office, Alan Greenspan will not be another possibility but to maintain the current size of bets.
