It’s an investigation of the effect of rising oil prices beginning in 2003 on Federal Reserve rate policy. Most of the material has been taken from FOMC minutes of the period 2003 – 2006.

Further Evidence of the Influence of Energy on the U.S. Economy – Part 2

There is a lot of discussion as to what the cause is of our current financial crisis. While rising energy costs cannot be identified as a ‘smoking gun’ it is clear from the Fed minutes that this rise required a policy response.

That the response would resonate so deeply across the world’s economies is surprising since interest rates have risen in the past, in some instances quite sharply. A difference this time would have to be the expansion of structured finance and the massive accompanying increase in leverage.

Part of the ongoing discussion will be how much effect the current energy price level is having on efforts to recover. I personally suspect energy prices are high enough to derail stimulus strategies.

Another part is the tale of the tape – what exactly the Fed and Fed governors were saying about energy and perhaps find some answers about why energy dropped out of the discussion starting in 2007. Obviously, the onrush of defaults and the effects ricocheting through the rest of the finance system was a distraction. Was there more?