High Gasoline Prices Pressure the US Recovery

The American economy is recovering. With the help of continuous monetary easing and tax cuts, indicators such as private spending and employment rates are improving. However, the scar of the economic crisis is deep, and true recovery is yet to be realized. Rising gas prices continue to be burdensome.

The real economic growth rate from October to December 2011 was 3 percent, compared to the year before. As a result of solid consumption and exporting, it was the highest in the last six quarters. Major indexes of February also show a steady improvement in non-agricultural employment and retail sales.

The Federal Reserve, in a statement issued after the Federal Open Market Committee met on March 13, made a slight upward adjustment to the economic outlook. It is also noteworthy that positive expectation toward recovery has raised stock prices and that there has been a favorable psychological turn among families and businesses.

However, too much optimism should be avoided. The aftereffects of the financial crisis remain: stagnant house prices and household debts. The recovery base of the U.S. economy is therefore considered weak.

The biggest concern is high gas prices. On average, regular gasoline is sold at almost $3.90 per gallon in the United States, approaching $4 per gallon for the first time since the summer of 2008. If this situation persists, consumption may be affected.

Although the concern over the European debt crisis has receded since its peak, convergence will require time. It is also difficult to eliminate the possibility of economies of developing countries growing more slowly than expected. U.S. officials should support the domestic economy with continuous credit easing and tax cuts, laying the foundation for true recovery.

The Federal Reserve will engage in Operation Twist until the end of June. That is, to change its assets and buy more long-term bonds. Its zero-interest policy is to be upheld until the end of 2014.

It could be that the Federal Reserve’s bold monetary relaxation is one reason for the high prices of oil and gasoline. Thus, positive effects of the bank’s policies are to be realized with utmost attention paid to such side effects.

Hostility continues between the ruling Democratic Party and the opposing Republican Party in the United States as the presidential election approaches. The parties should learn to compromise in order to secure funds needed for programs like continuous tax cuts as well as mid- to long-term plans for financial reconstruction.

Benefits of the U.S. recovery have reached Japan. Examples are expanding exports to the U.S. and high stock prices. With the hope to realize the recovery from the Great East Japan Earthquake, the country looks forward to America’s precise helmsmanship.