Analysts talk too, what if the gasoline stays higher 3.75 during a year, then all the benefits from tax cuts will not work. And if it rises to 5, then this is the road to recession.
The helicopter pilot also confirmed, that the rise of oil and commodities is a threat to the economy.
Bernanke: Rising Oil Prices Pose Threat to Economy
By JEANNINE AVERSA
Washington (AP) — Federal Reserve Chairman Ben Bernanke
told Congress on Tuesday that a prolonged rise in oil prices
would pose a danger to the economy. But he said a more likely
outcome is a temporary and modest increase in consumer prices,
not runaway inflation.
Bernanke, in testimony to the Senate Banking Committee,
also defended the Fed’s $600 billion bond-purchase program. He
told the panel that it’s succeeding in helping the economy. But
he avoided answering a question about how he measures its
success.
Bernanke did express confidence that economic growth would
increase this year. He cautioned, though, that it won’t be
strong enough to quickly lower unemployment, now at 9 percent.
He also cited other risks to the economy, including rising
prices for oil, gasoline, food and other commodities, and
further weakness in home prices. All could cause Americans to
spend less.
The Fed chief said the economy still needs the support of
the bond-purchase program. He downplayed the risks of runaway
inflation that others have raised.
"The most likely outcome is that the recent rise in
commodity prices will lead to, at most, a temporary and
relatively modest increase in U.S. consumer price inflation,"
Bernanke said in the first of two appearances this week to
deliver the Fed’s twice-a-year economic report to Congress.
The bond-purchase program is scheduled to end in June. It
is intended to spur more spending and invigorate the economy by
lowering rates on loans and boosting prices on stocks.
Republicans in Congress and some Fed officials worry that
the program could trigger high inflation and a wave of
speculative buying on Wall Street that could lead to new
bubbles in the prices of assets like stocks and bonds.
Sen. Richard Shelby of Alabama, the panel’s top-ranking
Republican, complained that the Fed needs to come up with a way
to measure the bond-purchase program’s success. Shelby asked
Bernanke for detailed information about whether it was a
success or failure. Bernanke said it has helped the economy,
but he didn’t provide specifics.
Bernanke said the bond program is needed to energize growth
and reduce unemployment. He blamed the rise in oil and global
commodities prices on strong demand from fast-growing countries
such as China, not on the Fed’s stimulus policy.
Gas prices jumped over the weekend to a new nationwide
average of $3.37 a gallon — 26.7 cents a gallon more than a
month ago. Food prices in January rose at the fastest since the
fall of 2008.
Political upheaval in the Middle East, Bernanke said, has
caused oil and gasoline prices to march higher. But Bernanke
said he and a majority of his Fed colleagues believe the
situation won’t lead to out of control inflation.
Workers have little power to demand big pay increases
because the jobs market is still weak. Many factories and other
companies are operating well below full capacity because
customer demand is far from booming. Those forces will prevent
inflation from taking off, Bernanke said.
Responding to questions from concerned lawmakers about
rising energy prices, Bernanke said the increases seen so far
"while a problem for many people, don’t pose a significant risk
to the recovery or to overall inflation."
Still, a prolonged rise in the price of oil or other
commodities would represent a "threat" to economic growth and
to inflation, Bernanke acknowledged.
Sen. Robert Menendez, D-N.J., complained that all American
families see and are concerned about are rising prices.
The Fed regularly reviews its bond-purchase program. It
could buy fewer securities if the economy were to grow more
strongly than anticipated or if inflation showed signs of
breaking out. Or it could buy more if the economy was in danger
of weakening. Most economists believe the Fed will spend the
full $600 billion on schedule.
Bernanke says the sharp drops in the nation’s unemployment
rates over the last two months were encouraging. But he said it
will still take "several years" for unemployment to drop back
to normal — around 6 percent.
"Until we see a sustained period of stronger job creation,
we cannot consider the recovery to be truly established," he
said.
If gas prices rise to $3.75 a gallon and stay there for a
year, they could erase the benefit of the Social Security tax
cut, economists said. The economy would still grow, but it
wouldn’t get a boost from people spending more on goods and
services.
If gasoline prices went as high as $5 a gallon, spending
cuts by consumers and businesses could push the economy into a
recession, analysts say.
On a separate issue, Bernanke said a failure by Congress to
boost the federal government’s borrowing authority would be an
"extremely dangerous and a recovery-ending event."
Republicans in Congress want to link any increases in the
nation’s debt limit to cuts in federal spending to reduce the
budget deficit. Democrats oppose that strategy.
In the unlikely event that Congress didn’t raise the debt
ceiling, the federal government wouldn’t be able to pay its
bills, triggering a financial crisis, Bernanke said. Interest
rates would spike, slowing spending by Americans and derailing
the recovery.
Bernanke also said that a House Republican plan to cut
spending would reduce economic growth and employment. But he
suggested the impact would be limited.
