Source Pravda.Ru

Oil prices affect the U.S. economy

President Bush's economic advisers warned on Sunday that high energy prices have become a drag on the U.S. economy and not a threat to growth, chipping away at Bush's upbeat election-year projections and increasing pressure on him to act. Treasury Secretary John Snow warned on Friday that, "We're seeing some slowing in the United States directly attributable to high energy prices." Gregory Mankiw, chairman of Bush's Council of Economic Advisers, went farther on Sunday, warning in a letter published in The New York Times: "High energy prices are now a drag on the economy, as well as a strain on family budgets." The warnings appeared to be part of a concerted shift in tone by Bush's top economic advisers, who for months have sought to minimize the risk of an economic slowdown in the run-up to the November presidential election. Bush's economic advisers have long described high energy prices as a threat or a burden to the U.S. recovery, but they said the impact was mostly being felt abroad rather than at home. "It has nothing to do with the election," an administration official said of the new warnings on energy prices. "It's a reaction to changes in the economy." Crude oil prices have soared to near $50 a barrel, and higher costs could eventually make their way through the refining system to send high gasoline prices higher. Crude oil prices account for nearly half the cost of making gasoline. The economists' warnings could help the administration lower growth expectations in case the economy slows more than expected, though Bush's advisers say they remain upbeat. Despite the drag from energy prices, Mankiw wrote on Sunday that the U.S. economy is "heading in the right direction," and that growth for the coming year is expected to remain "well above" 3 percent and that the unemployment rate would continue its decline, informs Reuters. According to CNNMoney, crude oil prices have soared to near $50 a barrel, and higher costs could eventually make their way through the refining system to send high gasoline prices higher. Crude oil prices account for nearly half the cost of making gasoline. A senior Fed official acknowledged last week that high oil prices will be a dampener on growth, citing studies that a sustained $10 increase in oil cuts economic growth by about 0.5 percentage point in a year. The economists' warnings could help the administration lower growth expectations in case the economy slows more than expected, though Bush's advisers say they remain upbeat. Despite the drag from energy prices, Mankiw wrote Sunday that the U.S. economy is "heading in the right direction," and that growth for the coming year is expected to remain "well above" 3 percent and that the unemployment rate would continue its decline. The new warnings could also turn up pressure on Bush to tap into the nation's emergency oil stockpile, as called for by Democrats. Snow said Friday that there had not yet been a large enough disruption to the supply of oil to warrant tapping the stockpile. Bush's Democratic presidential rival, John Kerry, has made record gas prices a centerpiece of his campaign. He has accused Bush -- a former Texas oilman -- of inaction and of breaking a 2000 pledge to step up pressure on the Organization of Petroleum Exporting Countries to keep prices low.

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