Rising energy costs will probably provoke concern among Federal Reserve officials this week that consumers and businesses will pull back on spending and slow the U.S. recovery, said economists such as Lou Crandall at Wrightson ICAP LLC.
The more than 9 percent increase in crude oil prices this year may leave consumers with less money to spend on other goods and boost corporate costs, curbing outlays for staff, plants and equipment. To the Fed, the threat of a flagging recovery may appear to be a bigger risk than inflation, Crandall said. Policy makers say achieving self-sustaining growth is vital before they begin to withdraw record monetary stimulus.
“The Fed is going to be worried about a soft patch in the near term,” said Crandall, Wrightson ICAP’s chief economist, who is based in Jersey City, New Jersey. While Fed officials will be prepared to react to inflation, “the high cost of a downside surprise in growth probably trumps everything else.”