Word: baumohl
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...warns TIME senior business writer Bernard Baumohl, if the Fed misinterprets the signs - which it might well do - it could plunge the economy into a recession. "We have an ideal situation here where the economy is growing at twice the speed limit set by the Fed, and yet inflation pressures are actually diminishing," says Baumohl. "That challenges the Fed's basic assumption that the economy can't experience prolonged growth above 3.5 percent without inciting inflation. That's exactly what we've seen for several years now, but Alan Greenspan still believes we're overheating...
...Fear of the specter of inflation will likely prompt further interest rate hikes by the Fed - Baumohl expects rates to rise a half percent by the summer - but the economy may already have gotten Greenspan's message. "Remember, the latest numbers are already out of date," says Baumohl. "Many analysts believe the economy is already slowing to a growth rate closer to 3.5 percent as the effects of the rate hikes since last June are felt." But the new numbers highlight a growing debate among economists over whether the rules of the economy have changed. While the Fed remains wedded...
...increase in the amount of crude they pump, in response to pressure from the U.S. for a 2.5 million-barrel-a-day increase. "Washington was pushing for 2.5 million a day in the hope that it would bring quicker relief to U.S. consumers," says TIME senior business writer Bernard Baumohl. "Even an increase of 1.7 million won't bring U.S. energy prices down that much...
...members from cheating on output targets as the price languished at $10 a barrel. "OPEC itself may have been surprised at the extent to which their members and associates have complied with production targets over the past year, because there had been so much cheating in the past," says Baumohl. "Non-OPEC producers would start to cheat to generate more revenue from oil, and then OPEC members would follow suit. But since last March, they've held firm, and they're likely to do that as long as it continues to maximize their revenues." The key to OPEC's success...
...while U.S. pressure will almost certainly prompt OPEC to at least partially back down, the price is unlikely to be pushed down to the depressed levels of the late '90s. "In the end," says Baumohl, "neither the U.S. nor its oil-producing allies want the price to fall too far. They'll probably look to find an optimal level, at which everybody wins." And that's a matter that will probably be settled nowhere near the free-trade mecca...