Not much has been happening in the economy except for the hand-wringing about the price of oil. Terrorist concerns in the Middle East and various refinery problems have caused nominal highs in oil prices. In past columns, I have documented the fact that, despite what the press is reporting, these are not really the highest historical prices once you adjust for inflation. The economy is still quite strong, but there are many concerns just coming over the horizon, and they appear to be looming larger.

All of the misreporting about the history of oil prices will eventually take its toll, especially after gas prices pass the psychological level of $3.00. They’re already past this level in California because of its special blends and higher taxes designed to discourage superfluous driving, and other parts of the country will experience these price levels as well. Where I live in Rhode Island , most gas stations are over $2.60 for unleaded gas. Under this pressure, consumer confidence will probably start sinking; it’s already been sluggish. This measure is not all that accurate, but reports about it never discuss its lack of accuracy and constant harping about it can really dampen things. Look for downward changes in consumer spending and consumer credit as the first signs of a slowdown.

The Fed seems very committed to slowing the economy down. It’s concerned about a housing bubble and the price of oil (but don’t newer homes consume less energy? They should be encouraging new home ownership, shouldn’t they?), and they seem to be ignoring relative price stability in other commodities. (Interestingly, there was a report from Washington that “...officials in the Japanese Ministry of Finance recently commented privately that the vibrant U.S. home mortgage market is supporting an otherwise shaky global economy.” This is at the same time that Greenspan is twisting arms in Washington regarding “imprudent speculation” in the housing market, which sounds a lot like his famous phrase “irrational exuberance” which he uttered when he talked about the seemingly endless rise of late 1990s stock prices. What Greenspan decides in conjunction with the other Fed members indeed ripples through to world markets in ways most of the U.S. citizenry does not completely understand.