Fed Reserve Chair on Energy and the Economy

June 15, 2006 – In my remarks today, I would like to discuss the relationship between energy markets and the economy. As I am certain all of you are aware, the steep increases in energy prices over the past several years have had significant consequences for households, businesses, and economic policy. At least since the time of the first oil shock in October 1973, economists have struggled to understand the ways that disturbances to the supply and demand balance in energy markets influence economic growth and inflation.

This higher relative price of energy poses many important questions for economists and policymakers. Why have the prices of oil and natural gas risen so much? What is the outlook for energy supplies and prices in the medium term and in the long term? And what implications does the behavior of energy prices have for the ongoing economic expansion and inflation? I will touch briefly on each of these questions.

Federal Reserve