Tipping point for oil seen at $150 per barrel

A top Federal Reserve official on Monday said the central bank should react if oil prices soar as high as $150 a barrel because prices that high could throw the economy back into recession.

Meanwhile, the White House is considering releasing oil from the Strategic Petroleum Reserve to curb the rapid rise in prices since unrest broke out in the Middle East last month. Within weeks, the price of premium crude has jumped from near $90 to more than $106 per barrel in New York trading Monday.

Although both moves are aimed at easing public consternation over the run-up of prices at the pump to more than $3.50 a gallon on average for regular gasoline, they also likely would rile conservatives in Congress.

The strategic reserve has been tapped only during emergencies, such as the Persian Gulf War, while critics say further easing by the Fed would only stoke oil-fed inflation while doing little to help the economy.

Divisions have emerged on the Federal Reserve Board over what to do, but many members appear to side with Chairman Ben S. Bernanke, who hinted in testimony last week that the central bank might react if oil prices go too high.

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Gas prices are posted Monday in Santa Cruz, Calif. Pump prices have ... more >

Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, for the first time Monday spelled out what level of oil prices might trigger Fed action, pinpointing the record level around $150 set in 2008. Many economists say those oil prices, along with $4-per-gallon gas, helped throw the economy into a recession.

“I think at the $120 range — it’s a manageable level,” Mr. Lockhart told the National Association of Business Economists.

“Around $150 it becomes a much more serious concern,” he said. “If it plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation.”

Despite widespread worries that the Fed could stoke inflation by accommodating high oil prices, Mr. Lockhart said inflation is not a problem, especially because wage gains — the biggest cost for most businesses — remain anemic.

That means there’s little risk of a spiral of higher wages chasing prices higher to double-digit levels as occurred after an oil-price spike in the 1970s.

Not all Fed officials agree with that point.

Richard W. Fisher, president of the Federal Reserve Bank of Dallas, on Monday said he worries that the Fed’s loose money policies will set inflation loose and prove counterproductive.

He might oppose any further easing by the Fed through its program of purchasing U.S. Treasury debt to try to lower long-term interest rates.

Conservatives in Congress have rallied around inflation hawks such as Mr. Fisher, who is a voting member of the Fed’s 12-member rate-setting committee this year, while Mr. Lockhart is not.

But Mr. Lockhart’s more dovish statement on oil prices closely tracks what many private analysts say: The economy can withstand higher prices up to a point. But any move by oil over $150 per barrel and gas prices more than $4 per gallon could pose a crushing blow to strapped consumers and the economy overall.

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