50 years ago, when the U.S. sneezed the rest of the world caught pneumonia.
The Federal Reserve still lives in that world. Apparently, it sees the potential inflationary impact of oil prices as a problem that the U.S. can solve by raising interest rates... even though the marketplace has pretty well reflected the dampening effect that oil prices have had on our spending habits.
Consequently, in the U.S. we can expect the following:
- Higher interest rates will slow the U.S. economy... housing starts are way down already and people are dipping into savings to fund their normal living needs
- Demand for gasoline has already dropped because of the price of gasoline; the sale of new vehicles will drop significantly due to interest rates
- Unemployment will rise as the cost of doing business in the U.S. rises
- Areas of the country that have already been impacted by manufacturing downturn and low growth will have declining economies
- Political unrest in oil producing countries, plus China and India have a growing need for oil products because the U.S. has jump-started their economies and they can now grow internally rather than be dependent on exports are external factors independent of U.S. demand for oil... and the U.S. will discover that raising our interest rates does not reduce oil prices - U.S. Federal Reserve - strike one!
- To remain competitive, U.S. manufacturers will be forced to export more jobs and production to China and India in order to further reduce their costs to offset the higher costs from interest rates thereby exacerbating economic decline - U.S. Federal Reserve - strike two!
- U.S. citizens will dramatically reduce their savings or further increase their debt levels to offset inflation from oil prices and lower incomes, thereby weakening the U.S. economic base - U.S. Federal Reserve - strike three!
The Federal Reserve overreacted in the first years of the decade and is overreacting again.