Ann Owen, director of the Arthur Levitt Public Affairs Center and associate professor of economics, was interviewed for an article in the Washington Times about the increase in interest rates. Owen said, "The Fed is in a tough position today because an important underlying cause of inflationary pressures is a rise in oil prices - something that the Fed cannot affect with interest rate increases."
The jump in oil prices to $46.76, where they ended in New York trading yesterday, has been attributed largely to developments outside the Fed's control, including political instability in oil-producing regions such as Iraq, Saudi Arabia and Russia.
"By raising rates, the Fed can hope to reduce inflationary pressures throughout the economy, but it cannot have a significant impact on oil prices," Owen said.
"The increased interest rates will undoubtedly cost jobs" in housing, autos and other areas as rates steadily rise in the months ahead. But the Fed thinks that the greater risk is that surging energy prices will fuel a renewed round of inflation, she said.
