NewsMax.com Wires
Tuesday, July 19, 2005

Story Continues Below

  The economy grew by 4.4 per cent last year, the strongest performance since 1999. Private economists believe this year could clock in around 3.5 per cent, a slower but still healthy pace.

Referring to the drag from the higher oil prices, Greenspan said, "Aside from these 'headwinds,' the U.S. economy seems to be coping pretty well with the run-up in crude oil prices."

Greenspan's thoughts on oil were contained in a letter to the U.S. Congress' joint economic committee. The letter provided Greenspan's written responses to questions that were submitted to him after his June 9 appearance before the panel.

Separately, Ben Bernanke, the new chairman of the White House Council of Economic Advisers, told reporters Monday that high oil prices were having an impact on family budgets but he believed the effect on the overall economy was modest.

"High oil prices certainly have been a problem for Americans," said Bernanke. "They are a burden on family budgets. They raise costs of production and reduce profits for firms."

Greenspan, in his letter, made a similar point. He said higher inflation spurred by rising energy prices has reduced households' purchasing power and slowed spending. Businesses, he said, "seem to have reassessed the profitability of some investment projects in the light of significantly higher energy costs."

Oil Prices Surge

Oil prices, which surged to a new closing high of $61.28 a barrel in early July, are hovering around $57 US a barrel. Gasoline prices last week set a record of $2.33 a gallon U.S.-wide.

"The higher oil prices so far have not depressed economic growth very substantially," Bernanke said. "I think that is a testament to the flexibility and adaptability of the U.S economy that it continues to grow despite this drag from energy prices."

Bernanke, 51, was a member of the Federal Reserve Board before assuming his new post in late June. He is frequently mentioned as a possible successor to Greenspan, who is expected to step down early next year.

Although Bernanke said he is impressed by the economy's ability to withstand high oil prices, he said that gyrations in those prices - in either direction - could create uncertainty and pose a possible challenge to the economy's good performance.

Under pressure from soaring gasoline and other energy prices, U.S. President George W. Bush has been prodding Congress to send him an energy bill before legislators leave for their summer recess in August. The House of Representatives and Senate have each passed their own energy bills and are now working on reconciling them.

On other issues in remarks to reporters, Bernanke refused to comment on a Chinese company's attempt to take over U.S. oil company Unocal. CNOOC's bid has raised hackles on Capitol Hill, where Democratic and Republican legislators are already worried about China's trade and economic relations with the United States.

Bernanke did say he believes China should move toward a more flexible exchange rate, something the Bush administration, manufacturers and legislators support. "I'm hopeful that they will move in that direction soon," he said.

He declined to offer an exact time frame when that would happen. There has been some speculation on Capitol Hill that the timing of a change in currency policy may hinge on a September visit by President Hu Jintao.

U.S. manufacturers contend that Beijing's practice of linking its currency to the dollar has undervalued the yuan by as much as 40 per cent, making Chinese goods cheaper in America and U.S. products more expensive there. That practice, critics say, has hurt U.S. sales abroad and has contributed to the loss of U.S. factory jobs.

© 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

Editor's note:
This report predicted oil prices – Find Out More Here
The dollar is collapsing – protect your wealth! Read More Here