Return to Transcripts main page

CNN Live Saturday

Rising Energy Prices May Hurt the U.S. Economy

Aired May 05, 2001 - 12:02   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DONNA KELLEY, CNN ANCHOR: One big party pooper for the U.S. economy is rising gasoline prices, that's what two Federal Reserve officials say. And pump prices have already topped $2.00 in some areas, and the peak summer driving season hasn't even started.

Peter Coy, an associate economics editor of "Business Week" magazine, joins us to talk more about the connection between energy prices and the health of the economy.

Hi, Peter, glad you could join us.

PETER COY, "BUSINESS WEEK": Glad to be with you.

KELLEY: What is the connection? How strong is the connection between energy and the economy?

COY: Well I think Fred Katayama put his finger on it when he said there is a strong connection. Energy prices -- I am talking about all energy prices, not just gasoline, but heating oil natural gas, electricity, rose 39 percent from 1998 to 2000. And even though the economy is slowing down this year, people expect another 9 percent rise this year. This money is coming out right of people's pockets. They could be spending on other things.

Not only that, but the Federal Reserve has to decide whether it should be cutting interest rates to get the economy moving ahead, or whether it should be thinking about holding them up to prevent the inflation that tends to come from higher energy prices.

KELLEY: What do you think is going to be biggest deal this summer for consumers? Will it be gasoline, or do you think it will be the air conditioning bills? It's already been hot in a number places, including the Northeast where you are the last couple of days.

COY: That's right. Well, I think gasoline is a bigger issue right now than electricity, except for one place, and that's the West Coast. California in particular, as you know, just got a rise of more than 40 percent in electricity bills to try to cover the soaring costs of wholesale electricity. You know, their biggest utility is already in Chapter 11, and there are fears that there could be more rolling blackouts this summer.

KELLEY: Well, you know, I was reading you your article that you have, and I think it will be interesting for folks for you to kind of following that trickle-down how that goes. If they get those blackouts in California, if we have these higher energy and gasoline prices, how many people that affects and what industries?

COY: Right. It affects anyone who is a big user of electricity, and that includes, like, the aluminum smelters, for example, steel mills. And from then on, you know, it trickles down to anybody who needs lights and air conditioning, which is just about everybody.

The worst is a blackout. I mean, you can -- higher prices are bad, but if you can't get any electricity at any price, that's disastrous for business.

KELLEY: Real quickly, do you see any hope at the end of the tunnel?

COY: Yes. I do. I think in the long term, the outlook is much brighter.

KELLEY: What's long-term to you?

COY: Long-term -- I mean, even by the end of this year, I think we are going to see lower gasoline prices, new generating capacity that will help the electricity situation. Natural gas is not expected to be as expensive this coming winter as it was last winter.

But right now, the economy is under the pressure of a possible recession, and so today's high energy prices are very dangerous.

KELLEY: All right, Peter Coy, thanks very much, with "Business Week," appreciate your time.

COY: Sure.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com