Another surge in world oil prices to beyond $US133 a barrel has strengthened the case put in the latest economic forecast by the Federal Reserve: that the US is in recession.
The price of oil has hit record highs, peaking at $US134.15 before easing, rising more than 3% in the day’s trading and is now up around 17% in the past five days. News of record oil prices came on the same day that the Fed released the minutes from its meeting on the 29th and 30th of April.
The minutes record that Federal Reserve members now expect the US economy to shrink in the first half of the year — the clearest indication that the peak economic policymaking group believes the economy is in recession.
“Economic activity was anticipated to be weakest over the next few months, with many participants judging that real GDP was likely to contract slightly in the first half of 2008,” the minutes read.
The Fed forecast lower growth, higher unemployment and higher inflation for the rest of 2008 and into 2009.
It was confirmation of what should have been obvious to US markets, the Bush Administration and investors around the world for the past two months — since Bear Stearns was rescued — but the hype of a rebound in the economy was widely accepted. Inflation was dismissed as being either temporary or under control because core readings showed mild rises in prices. That was wrong.
The minutes confirmed that the Fed came close to not cutting rates by 0.25% on April 30, and will now certainly not cut again: the next move is a rate increase, if the way oil and food prices have pushed inflation higher. The Fed saw growth in the range from a tiny 0.3% to 1.2% in 2008, down from the 1.3% to 2% it estimated in January.
On this news, and surging oil prices, Wall Street fell again steeply with the slump now more than 3% in two days or over 425 points on the Dow, and similar falls for other indices. The euro was stronger, the US dollar weaker and the Aussie dollar hit a new 25 year high of 96.54 US cents in New York just after 4am, before easing a touch in local trading.
statistician…you are .so right…..we do have a lot to learn from the yanks…how to destroy the lives of millions if not billions of people…borrow money to go to war for greed..profit for the few..and the reason for all this inflation..OIL..stop the war..then no inflation…
How can America deflect a recession? Easy – change the basis how they calculate their figures. Take out fuel, food and utility costs and hey presto – recession gone. The sheepeople can go back to grazing on football and celebrity inanities on their new flat screen TVs. If this alchemy is impressive, what they can do with election results. We have much to learn from the Yanks.
The USA has been in a recession for about 5 years now only nobody wanted to know about so they fudged the figures with a lot of statistical wizardry and hey pesto no recession. One such method is to assume that if an item has risen, then shoppers will buy something cheaper. An example often quoted is; if beef steak gets too expensive then people buy ground beef.
Is it little wonder that all commodity futures have risen since August last year (the start of the credit crunch) as hedge funds and other institutional investors looked for somewhere to park their money and still show a profit. I have read somewhere that about $24 billion has been injected into the commodities markets.
If there was a short fall in supply as all the pundits are saying then would not the mainstream media be reporting long queues or rationing or even rioting somewhere in the world because of the shortage.
I find it strange when the inventories move either way the price goes up. If the inventory falls the price goes higher. If the inventory rises, the price goes up.
I have also read that Alaska has extremely rich fields drilled and capped with enough natural gas to supply the USA for the next 200 years even allowing for a 10% growth in usage. A burn test to prove the field yeilded a flow rate of 50,000 barrels an hour at artesian pressure. I cannot recall the exact location but I believe it is outside the environmentally protected areas.
The injection of all this hedge fund money is why there is a so-called food shortage. It is not so much a shortage of food although world stocks are reduced at present but it is the price of food that is causing the shortages. People simply cannot afford to buy it, especially; in those poorer countries of the world.