June 28, 2005

Snow says oil prices hurting economy-CNBC

By Kevin Plumberg

NEW YORK (Reuters) - U.S. Treasury Secretary John Snowacknowledged on Tuesday that record high oil prices arebeginning to take their toll on the U.S. economy, but notenough to derail the economy's strong recovery.

"Energy prices are way too high," Snow said on CNBCtelevision. "Clearly, it's hurting."

After hitting a three-month low in May, U.S.-traded oilfutures have risen around 32 percent to a record high of $60.95a barrel on Monday. In early trading Tuesday, oil pricesslipped to $59.25.

High energy prices often sap domestic spending, asconsumers have to shell out more for gasoline and less forother goods. A consumer-led slowdown has the potential to dentU.S. economic growth, particularly since consumer spendingmakes up roughly two-thirds of the economy.

"Clearly, energy prices serve as a tax, they reduce thedisposable income available to do other things and they takesome oxygen out of the economy," Snow said. "Energy is myconcern. I think energy is the biggest concern," he added.

But Snow said the U.S. economy is currently managing towithstand the "headwinds" of oil at $60 a barrel. When asked ifthese energy prices portend a recession, Snow said: "No. Idon't see it derailing the strong recovery we're in ... but itdoes take a few tenths of a (percentage) point off GDP growth,that's for sure."

U.S. gross domestic product increased at an annualized paceof 3.5 percent in the first three months of 2005, according tothe preliminary reading from the Commerce Department. GDP grew3.8 percent in the fourth quarter.

Snow tried to alleviate concerns that climbing nationwidehousing prices could ultimately lead to an asset bubble thatwill burst at some point.

"I think in some markets housing prices have risen out of alignment with underlying earnings," Snow said. But alsoanswering the question whether there was a housing bubble inthe United States his answer was a flat-out "no."


Snow, a guest host on the business news channel, focusedhis growth concerns on Europe, which he said is having anindirect effect on U.S. economic growth.

"They are a huge trading partner," Snow said of the eurozone. "The fact they aren't growing (close to potential) hurtsour growth," he said.

Sparking growth in Europe will undoubtedly be on the agendafor finance ministers from the Group of Eight largestindustrialized nations when they meet next week.

"I hope they'll renew their commitment and put in placeaction plans for faster growth in Europe. It takes politicalleadership to get that done," Snow said.

The recent rejection of the European Union constitution byvoters in France and the Netherlands has spawned politicalturmoil and economic uncertainty in the 12-nation euro zone.

The differences in perceived growth potential betweenEurope and the United States have helped to push the euro downto a 10-month low of $1.1981 last week .

The European Central Bank expects euro zone growth of 1.4percent in 2005.

Snow reiterated the Bush administration's oft-repeatedstrong dollar policy, underscoring that the value of thecurrency is best set in open and competitive markets.

"As many times as I say it, I need to say it again: we havea strong dollar policy," he said.

(Reporting by John Parry and Jamie McGeever)