Greenspan Doesn't See Gas Prices Falling Soon
This year's jump in natural-gas prices looks likely to be protracted, and yesterday, Federal Reserve Chairman Alan Greenspan raised the possibility that those prices could become an increasing drag on the U.S. economy.</br></br>Natural gas is used to generate electricity, heat homes and manufacture a variety of chemicals, plastics and fertilizers that in turn are used to make thousands of other products. Mr. Greenspan, appearing before the House energy and commerce committee, said higher natural-gas prices have knocked "a couple tenths [of a percentage point] off profit margins" for U.S. companies, which are a key determinant of business investment, currently the economy's weakest spot. At the same time, the costlier fuel is likely to mean higher bills for consumers, taking spending money out of their pockets.</br></br>Mr. Greenspan said there is little prospect for natural-gas prices to fall much in coming months. "If we stay at these very elevated prices, we are going to see some erosion in a number of macroeconomic variables."</br></br>The Fed is already worried about the sluggish pace of economic growth and the risk that low inflation, excluding energy prices, could turn into deflation. It may trim short-term interest rates later this month as insurance against further weakness and deflation.</br></br>The price of natural gas for July delivery rose 1.6 cents to $6.33 per million British thermal units on the New York Mercantile Exchange, more than twice the typical summer price.