Should Americans worry about the price of gas and oil in coming months because of Russia’s invasion of Ukraine? And might it ultimately cause a recession if energy prices remain elevated?
That is what some economists seem to believe, such as former Treasury Secretary Larry Summers.
Professor Summers in a recent Wash Post Op-ed, said “I believe the Fed has not internalized the magnitude of its errors over the past year, is operating with an inappropriate and dangerous framework, and needs to take far stronger action to support price stability than appears likely. The Fed’s current policy trajectory is likely to lead to stagflation, with average unemployment and inflation both averaging over 5 percent over the next few years — and ultimately to a major recession.”
Yet the current unemployment rate is 3.8 percent, and more that 1,747,000 jobs created over just the past three months, so it’s hard to imagine a recession is anywhere on the horizon, unless the Ukraine invasion turns into something more.
In fact, our current inflation surge is due to our very robust economic growth, more than 3 percent above the prepandemic level, and at a 40-year high.
The U.S. Energy Information Agency says we have plenty gas and oil reserves, in fact a surplus which we can export to the EU, if necessary, to help maintain the sanctions until Putin cries Uncle on his Tsarist fantasy of a greater Russian empire.
“After record-high U.S. energy production and consumption in 2018, energy production grew by nearly 6% in 2019 while energy consumption decreased by about 1%, with production exceeding consumption on an annual basis for the first time since 1957. Total energy production declined by about 5% in 2020 but was still about 3% greater than consumption: production equaled 95.75 quads and consumption equaled 92.94 quads.”
Unfortunately, we are still over dependent on fossil fuels: “petroleum, natural gas, and coal—accounted for about 79% of total U.S. primary energy production in 2020,” said the USEIA.
It is leading to prolonged inflation for American drivers and is worrying Fed Chair Jerome Powell in his latest congressional hearings. So he is now sounding more hawkish re the need to raise interest rates faster.
“We will take the necessary steps to ensure a return to price stability. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Powell said in a speech to the National Association for Business Economics.
So who is right, Summers or those who predict a prolonged trajectory of U.S. economic growth?
Nobelist Paul Krugman gets the last word in a recent NY Times Op-ed: “We recovered fast from the pandemic recession and seem to have avoided the long-term “scarring” effects that many feared. Most though not all of the inflation we’re experiencing reflects probably temporary global forces, and multiple indicators — consumer surveys, professional forecasters and financial markets — suggest that longer-term expectations of inflation remain “anchored,” that is, inflation isn’t getting entrenched in the economy.”
I believe we shouldn’t overlook the newfound unity of western, democratic nations that oppose Putin’s wars. How long can Putin and Russian citizens tolerate their economy reverting back to the size it was in 1980, as Daleep Singh, one sanctions expert interviewed on the TV news show Sixty Minutes put it?
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
No comments:
Post a Comment