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In Reply to: Yeah...but He HAS a POINT posted by Greenspan Jr. on March 03, 2000 at 17:35:29:
IANAE, but I don't think that's right. The Fed wants to make sure that the economy doesn't "overheat" or grow to fast and create inflation due to demand for labor and other inputs.
The money used to buy foreign oil is removed from the US economy (well until the money comes back to pay for fighter jets ;-), and while they are inflationary, increases in oil prices also slow the economy. (I think mainly because the money goes over seas, but also because it increases the prices of goods without increasing demand for them.)
The Fed generates all sorts of stats about the economy and looks at inflation from many different angles - in particular they do break out inflation in energy costs from that of other goods. They will respond differently to inflation in energy costs vs. inflation in labor.
Our economy is no longer as tied to energy costs as it was in the 70's.
If sustained, the current increase in oil prices will likely only slow the rate of growth in the economy and not induce a recession or even across the board inflation. A slowing of the economy will make it less likely that the Fed will raise rates.
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