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Economists Uncertain Of Energy Costs' Impact

Falling oil prices typically translate into drops in gasoline pump prices within two to four weeks. But at this time of year, as the weather gets warmer, Americans tend to drive more, increasing demand and gas prices.

These "competing forces" make gas prices hard to forecast, said Doug MacIntyre, an oil analyst for the Energy Department's Energy Information Administration. "We're likely to see a leveling off and perhaps a slight decrease [in gasoline prices] if the crude oil prices stay down where they are," MacIntyre said.

Josh Stump, of Albany, Ohio, fills his tank at a Citgo gas station earlier this month in Columbus, Ohio. (Jay Laprete -- Bloomberg News)

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Mark Routt, senior consultant at Energy Security Analysis Inc. in Wakefield, Mass., said gas prices should be lower by Memorial Day weekend, though not below $2 a gallon.

The continuing uncertainties over energy costs and consumer spending give businesses a new reason to be cautious about adding workers, said Richard Yamarone, director of economic research at Argus Research Corp., who foresees a "more prolonged soft patch" than last summer. "We're not going to see the job creation we would have liked to have seen at this time," he said.

The very fact that oil and gas prices have swung so much over the past year creates "added uncertainty" for businesses and consumers, who may then hunker down more than expected, said David Rosenberg, chief North American economist for Merrill Lynch & Co.

At the start of the year, Yamarone and others had forecast the U.S. economy to grow around 4 percent this year. Now the growth estimate is closer to 3 percent.

Other analysts said that if energy prices stop rising, they will not sap any more buying power or feed additional inflation pressures. "We believe the damage will be modest," wrote Kevin Cummins, an economist at UBS Securities LLC.

Energy prices are complicating the Fed's job of setting interest rates to promote growth while keeping inflation low.

After their last policymaking meeting March 22, Fed officials issued a statement noting rising inflation pressures and a growing ability of businesses to raise prices. Some analysts took that as a warning that the Fed might raise interest rates more aggressively in coming months.

But other observers said that energy prices, by slowing growth, reduce pressure on the Fed to move rates up faster. That should enable the Fed to continue to raise its benchmark rate at a gradual, or "measured," pace, they said.

Kohn made clear the Fed plans to continue to raise interest rates to keep inflation contained, and the pace will depend on how the economy evolves.

"A measured pace of rate increases is our best guess, for now" of how the Fed will proceed, he said. "But that guess is conditional and contingent on our expectations" that economic "growth ahead is moderate and inflation pressures are contained."

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