CAIRO (Reuters) - Oil prices are starting to have an impact on the level of economic activity in the United States but it is too early to say the economy has entered a recession, U.S. Energy Secretary Sam Bodman said on Wednesday.
“The price of oil is a meaningful factor. It certainly has been a contributor to our problems,” Bodman told businessmen at lunch in Cairo.
“Our economy has been able to withstand the big run-ups in prices but I have to believe that with (oil) prices at $100 (a barrel) it’s starting to have an impact on the level of our economic activity,” he said.
Oil has eased from the record high of $100 struck early this month to trade around $88 a barrel on Wednesday as stock markets have declined further, shrugging off a temporary reprieve from the steep cut in U.S. interest rates a day earlier.
The U.S. Federal Reserve slashed its key federal funds rate by 75 basis points to 3.50 percent -- the largest cut in more than 23 years -- a week ahead of its scheduled meeting, underscoring the risks facing the largest economy in the world.
Bodman said it was “far too early” to say that the U.S. economy had gone into recession.
He also hoped the Fed rate cut would have an “instantaneous” effect on the economy, and that a stimulus package of around $150 billion that could move through Congress was not “too little too late”, as some analysts have suggested.
“I would think that the combination of (the Fed rate cut) together with a tax program that would put more dollars into the hands of consumers would see a two-level commitment,” Bodman told a news conference.
An improvement in the U.S. economy could spark a “modest increase” in oil prices, he added.
“But it is also a function of how much oil is available by OPEC and non-OPEC nations. To do a one-to-one relationship in a difficult task,” he added.
Bodman arrived in Cairo after a tour of Gulf Arab countries during which he was hopeful Saudi Arabia, the world’s biggest oil producer, would steer a decision to increase supplies at the next meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna on February 1.
U.S. President George W. Bush has also asked for more oil output in a separate visit to Saudi Arabia this month.
Bodman said on Wednesday he did not know whether OPEC would heed the U.S. call, but said it was unlikely that the group would cut production for fear of a decline in demand because of worries over the world economy.
Asked if the United States would dip into its strategic oil reserves, Bodman answered: “No.”
“The idea of a strategic petroleum reserve is to make available a reserve of fuel in the event of a physical disruption in the availability of oil, and so far our judgment is there is not (such a disruption),” he said.
Writing by Alaa Shahine and Will Rasmussen; editing by James Jukwey