CHICAGO (AFX-ASIA) - Federal Reserve board chairman Alan Greenspan said that despite the continued rise in the cost of electricity, overall energy prices paid by corporations have declined in the first two months of the second quarter, easing pressure on corporate balance sheets.
"Overall energy prices paid in April and May were down from the levels of the first quarter, suggesting some easing in pressures on profit markets from energy this quarter," Greenspan said in an address on the energy market's impact on the economy to the Economic Club of Chicago.
Greenspan said the Fed had a "heightened wariness" about energy prices because the last three recessions in the U.S. were preceded by spikes in the price of oil.
The Fed chairman said that a higher energy prices were a substantial part of the rise in total costs of corporations between the second quarter of 2000 and the first quarter this year, and companies were only able to pass through a small part into higher prices. The improvement in the cost of energy has come from falling spot prices for natural gas, and a decline in the wholesale and retail prices of gasoline, Greenspan said.
But the Fed chairman was still cautious about the outlook. "We can not be certain of course, that the recent spike in gasoline prices in the United States is behind us, especially when crude oil supplies are never fully secure because of the unpredictability of events in the Middle East," he said.
Greenspan said that the forecast of a crisis in gasoline prices has failed to develop this summer because in market economies, producers and consumers alike react to price signals in ways that help to prevent the predicted disasters.
The California electricity crisis is a "concern for the U.S. economic outlook," he said.
"Fortunately, the overall effects on the California economy, and on those of its neighboring states seems to have been modest, at least to date," Greenspan said.
But the Fed chairman said that there has been some signs that responses to market signals are having some effects in California but added that "to assume that California is going to be able to avoid serious problems as the full brunt of demands for energy mount this summer would be foolhardy."
The potential for disruptions remains in the months ahead as the significant additions to capacity will not be in place in time, he said.