Paulson Expects Economy To Improve, But No Easy Fix For Rising Oil Rates

July 3, 2008 1:16 p.m. EST

Washington, D.C. (AHN) - U.S. Treasure Secretary Henry Paulson on Thursday said the U.S. economy is likely to strengthen but there may not be an immediate solution to ease the rising oil prices.

Paulson, who finished his a four-day European trip on Thursday, agreed with U.K. Finance Minister Alistair Darling on the possibility that the global inflation may not be easy to control.

His warning came just as oil prices surged above $146 a barrel on New York Mercantile Exchange on Thursday, pushing the oil prices by 55 percent since the start of this year.

Oil futures jumped to an intraday record high of $146.34 a barrel, after it moved up by $1.77 at $146.03 in morning trade.

The companies are being forced to cut down their earnings outlook and increase debts due to the untamable oil rates and rising inflation aftermaths.

"The capital markets turmoil is going to take a while also [and] this housing correction is going to be going on for some time," Paulson said in a statement.

Confidence among U.S. consumers declined to a 28-year low to 56.7 in June compared to 59.8 in the month of May, according to preliminary results from the University of Michigan and Reuters released last month.

The U.S. consumers expect the inflation rate to be at 3.4 percent over the next five years, which is the highest reading registered since 1995 and remained unchanged from May.

While, the one year inflation expectations by the consumers was 5.1 percent in June, compared to the 5.2 percent reported in the month of May.

The consumer price index gained at a seasonally adjusted rate of 0.6 percent, which is the highest since November 2007, after it was up by 0.2 percent in April, according to the report released on Friday.

The core consumer price index (CPI), excluding food and energy prices, climbed up by 0.2 percent as expected.

There may be some improvement in the overall economic outlook of the U.S. and it may support the argument by Paulson on Thursday.

The U.S. economy grew at an annual rate of 1 percent in the first quarter of the year amid the sluggish housing market.

The Commerce Department reported last week that the U.S. real gross domestic product for the quarter was revised at annualized rate compared to the earlier estimate of 0.9 percent.

European Central Bank President Jean-Claude Trichet decided to increase the key interest rates on Thursday by a quarter-point to 4.25 percent.

Trichet indicated that higher interest rate is going to bring down the inflation plaguing the equities in the European markets.