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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: Alastair McIntosh who wrote (249266)	5/8/2008 2:35:06 PM
From: gamesmistress	Respond to of 793694

Bubble? What Bubble? You pays your money and you makes your choice, I guess. ECONOMIC FORECASTING SURVEY Commodities Aren't in a Bubble, Demand Key Factor, Economists Say By PHIL IZZO May 8, 2008 2:27 p.m. Wall Street Journal The surge in food and energy prices is being driven by fundamental market conditions, rather than an investment bubble, according to the majority of economists in the latest Wall Street Journal forecasting survey. "It's a combination of demand and supply issues," said Joseph Carson of AllianceBernstein. But while most of the analysts attributed the food and energy costs to fundamental trends, 11% of the economists see a potential bubble driven by speculation. "Commodity markets have become a strange safe haven, with prices well out of line with underlying market fundamentals," said Diane Swonk of Mesirow Financial. "I am dumbfounded that a report like Friday's employment report triggered a rally in oil prices... Just plain ridiculous." Last week, the Labor Department reported a slight drop in the unemployment rate to 5%, and a smaller-than-expected decline of 20,000 in payrolls. Crude prices rose 3.4%. The survey of the 53 respondents, conducted May 2-6, showed that the economists, on average, expect the price of crude to fall to about $105 a barrel by the end of next month from the current record-high levels above $120 and to decrease to about $93 by the end of the year. Their expectations for overall inflation continue to rise. They expect the consumer price index, which rose 4% year-over-year in March, to increase 3.6% in June compared with a year earlier. Gas prices are expected to stay high -- an average price of $3.45 a gallon over the next 12 months. The average price was $3.46 a gallon last month. Despite concerns about rising prices, a majority of respondents -- 60% -- said the Federal Reserve is showing enough concern about inflation and that its focus on the risks to growth is the right priority. The Fed has cut its key interest rate by 3.25 percentage points since last fall but recently signaled it intends to pause. "Worry about inflation after we're sure this isn't a depression," said David Wyss of Standard & Poor's Corp. Indeed, just 36% of the economists think the credit crisis is over or mostly over, while 62% say it's only about half finished. Other economists expect inflation to moderate as the economy slows. "The recession will cure inflation, without Fed help," said Ethan Harris of Lehman Brothers. The forecasters expect the second-quarter gross domestic product to increase just 0.2% at an annual rate, and to grow less than 2% until the second quarter of next year. However, a sizable minority -- 40% -- says the Fed isn't concerned enough about inflation. Some of the analysts aren't convinced that a slowdown will tame inflation. "The U.S. isn't nearly as big a part of demand for oil and food as it was years ago," said Allen Sinai of Decision Economics. "We'd need to see a global downturn to tame inflation." Mr. Sinai also worries that the Fed is allowing inflation expectations to become elevated. A similar point was made earlier this week by Federal Reserve Bank of Kansas City President Thomas Hoenig, who isn't currently a voting member of the interest-rate-setting Federal Open Market Committee. "This has been their line in the sand," said Mr. Sinai. Mr. Hoenig's "comments were the most hawkish [on inflation] in this cycle. He gives a clear hint that the Fed's next move is up." Still, on average, the economists expect the Fed's benchmark federal-funds rate, the rate at which banks lend each other money overnight, to remain at the current level of 2% for the rest of this year. They see the unemployment rate rising to 5.5% by December and the economy shedding an average of 6,000 jobs a month over the next 12 months. ABOUT THE SURVEY The Wall Street Journal surveys a group of 55 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economists. Fifty-one percent of the respondents said demand from China and India was the prime factor in soaring energy prices, and 40% said demand was the chief contributor to rising food costs. Constrained supply was cited second most-often; 20% blamed supply problems for higher food prices and 15% for increasing energy prices.