Fed's Poole Says Money Supply's Growth a `Concern'
Biloxi, Mississippi, March 12 (Bloomberg) -- The growth of the U.S. money supply is a ``source of concern'' because it outpaces the rate of inflation, said St. Louis Federal Reserve Bank President William Poole.
Money supply ``growth rates are too high for the long run,'' he said to the Young Mississippi Bankers Association. If money supply doesn't slow its growth, it may trigger inflation, he added. ``I sincerely hope they don't come together by way of inflation.''
``You can't have money supply growth of 8 or 9 percent when inflation is 1 or 2 percent,'' he said. Poole is not a voting member of the Federal Reserve's policy-making Open Market Committee this year.
The money supply fell by $3 billion in the week ended March 1, the Federal Reserve said yesterday. However, the M2 money supply has been growing at an 8.6 percent annual rate for the past 52 weeks.
Another area the FOMC is watching is the rate of inflation, held down recently by declines in oil prices. So far this month, however, oil prices have climbed 17 percent and could go higher if oil-producing countries succeed in cutting output.
``We cannot continue to rely on the decline of oil prices at the pace of the last couple of years,'' he said. ``If oil prices go up some, it would be within normal range of things that we'd have to deal with. It's just one of many things out there we're watching.''
Poole's last speech was Feb. 12, when he declared the
Federal Reserve's interest rate policy to be ``right on track,'' given that inflation could accelerate this year.
However, in an interview Monday, Poole said investors who had pushed bond yields to their highest level in six months were correct in assuming the Fed's next move would be to increase interest rates.
The FOMC, when it met Feb. 2-3, left the overnight bank lending rate at 4.75 percent. Poole voted last year on the committee, when the Fed cut the rate three times between September and November to the current 4.75 rate.
Crude Oil Surges After Producers Agree on Output Cuts to End
World Surplus
New York, March 12 (Bloomberg) -- Crude oil rose for the fourth time this week, jumping briefly above $15 a barrel for the first time in five months, after oil producers agreed to cut output.
Saudi Arabia, the world's top producer, and a dozen other nations will trim output by more than 2 million barrels a day, or 2.7 percent of world supply, Saudi oil minister Ali Al-Naimi said. The agreement comes after a global inventory surplus sent prices to 12-year lows in December.
``They are going in the right direction,'' said Pierre Jungels, chief executive of Enterprise Oil Plc, the U.K.'s top oil exploration and production company. ``Fifteen-dollar oil satisfies everybody and $10 oil satisfies nobody.''
Crude oil for April delivery rose 14 cents to $14.45 a barrel on the New York Mercantile Exchange. The contract rose as much as 80 cents to $15.11 a barrel, the highest price for crude since Oct. 7, before falling back. Crude futures have gained 22 percent in the past month.
Prices retreated from early highs as traders reassessed the impact the cuts will have on world supply. In addition, some traders saw a 14 percent rally this week as a signal to sell.
``Fifteen dollars is a little high for the kind of cuts they are talking about,'' said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. Oil at around ``$14.50 is a fairer level for prices, considering that inventories are still very high.''
April Brent crude rose 42 cents to $12.60 a barrel on the International Petroleum Exchange in London, the highest price since Nov. 4.
OPEC Meeting
The output reductions are due to take effect April 1. The agreement was reached after two days of talks in The Netherlands between Saudi Arabia, Venezuela, Mexico, Iran and Algeria -- all except Mexico are members of the Organization of Petroleum Exporting Countries. Details of the cuts will be announced at the 11-member OPEC meeting on March 23 in Vienna, oil ministers said, and most other OPEC members will share in the cuts.
Inaction by OPEC at its last meeting in November prompted prices to collapse to a 12-year low of $10.35 a barrel in New York the following month. A combination of excess production, ample inventories and poor demand for winter heating fuels pushed prices down.
Crude oil inventories in the U.S. are 10 million barrels higher than they were a year ago, according to the American Petroleum Institute, an industry group.
Traders were encouraged by today's announcement though, after yesterday saying that a cut of anything less than 1 million barrels a day would spur disappointment -- and lower prices.
``I think it's real good news, in fact, I'm shocked,'' said Bill O'Grady, a director of fundamental futures research at A.G. Edwards & Sons in St. Louis, who added that prices would probably return to a trading range of between $17 and $19 a barrel if the cuts are carried through.
Oil producers were also optimistic. ``In the following weeks we expect a substantial increase in oil prices,'' Mexican Energy Secretary Luis Tellez said at a press conference in Mexico City. ``We hope the reaction of the oil market will boost oil prices by $2 a barrel.''
OPEC and other producers pledged cuts last year that amounted to about 3.2 million barrels a day. OPEC members took most of that burden with a cut of 2.6 million barrels a day, though last month OPEC met only about 79 percent of its promised cuts, according to a survey by Bloomberg News. Iran was the biggest laggard.
Petroleum product prices followed crude higher.
Heating oil for April delivery on the Nymex rose 0.91 cent, or 2.4 percent, to 38.80 cents a gallon. Gasoline for April delivery rose 0.95 cent, or 2.1 percent, to 45.25 cents a gallon.