Record oil prices are unlikely to inflict the economic pain they did in the 1970s, Federal Reserve Chairman Mr Alan Greenspan said today, adding that he thought the world could adjust to higher-priced oil.
"The impact of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s," Mr Greenspan said in remarks prepared for delivery to a luncheon sponsored by the National Italian American Federation.
"So far this year, the rise in the value of imported oil, essentially a tax on US residents, has amounted to about 3/4 per cent of GDP (gross domestic product)," the central bank chief said, while warning: "The risk of more serious negative consequences would intensify if oil prices were to move materially higher."
Mr Greenspan said over the long haul, technological advances and market forces would likely ensure the world had an adequate supply of oil as it makes an eventual transition to other energy sources.
US oil futures prices hit a record high of $54.88 a barrel yesterday but Mr Greenspan noted that on an inflation-adjusted basis, the price remains well below its February 1981 peak.
Oil futures showed little immediate reaction to Mr Greenspan's remarks, with crude for November delivery down 46 cents to $54.30 per barrel.
As prices surged, financial markets have begun to wager more heavily that the US central bank would soon pause in its rate hike campaign, which it began in June to move historically low interest rates to more normal levels.
The Fed has been widely expected to raise overnight borrowing costs a slim quarter-percentage point to 2 per cent at its next policy meeting on Nov. 10.
However, with economic data mixed and oil prices weighing on consumers, many economists and futures markets believe the Fed could hold fire at its subsequent gathering in December.
Mr Greenspan's remarks did little to change those views, with stock, bonds and foreign exchange markets exhibiting little reaction.