NEW YORK – Treasury Secretary John Snow (search) acknowledged on Tuesday that record high oil prices are beginning to take their toll on the U.S. economy, but not enough to derail the economy's strong recovery.
"Energy prices are way too high," Snow said on CNBC television. "Clearly, it's hurting."
After hitting a three-month low in May, U.S.-traded oil futures have risen around 32 percent to a record high of $60.95 a barrel on Monday. Crude for August delivery settled down $2.34 or 3.8 percent at $58.20 on the New York Mercantile Exchange (search) Tuesday.
High energy prices often sap domestic spending, as consumers have to shell out more for gasoline and less for other goods. A consumer-led slowdown has the potential to dent U.S. economic growth, particularly since consumer spending makes up roughly two-thirds of the economy.
"Clearly, energy prices serve as a tax, they reduce the disposable income available to do other things and they take some oxygen out of the economy," Snow said. "Energy is my concern. I think energy is the biggest concern," he added.
But Snow said the U.S. economy is currently managing to withstand the "headwinds" of oil at $60 a barrel. When asked if these energy prices portend a recession, Snow said: "No. I don't see it derailing the strong recovery we're in ... but it does take a few tenths of a (percentage) point off GDPgrowth, that's for sure."
U.S. gross domestic product (search) increased at an annualized pace of 3.5 percent in the first three months of 2005, according to the preliminary reading from the Commerce Department (search). GDP grew 3.8 percent in the fourth quarter.
Snow tried to alleviate concerns that climbing nationwide housing prices could ultimately lead to an asset bubble that will burst at some point.
"I think in some markets housing prices have risen out of alignment with underlying earnings," Snow said. But also answering the question whether there was a housing bubble in the United States his answer was a flat-out "no."
Snow, a guest host on the business news channel, focused his growth concerns on Europe, which he said is having an indirect effect on U.S. economic growth.
"They are a huge trading partner," Snow said of the euro zone. "The fact they aren't growing (close to potential) hurts our growth," he said.
Sparking growth in Europe will undoubtedly be on the agenda for finance ministers from the Group of Eight largest industrialized nations when they meet next week.
"I hope they'll renew their commitment and put in place action plans for faster growth in Europe. It takes political leadership to get that done," Snow said.
The recent rejection of the European Union constitution by voters in France and the Netherlands has spawned political turmoil and economic uncertainty in the 12-nation euro zone.
The differences in perceived growth potential between Europe and the United States have helped to push the euro down to a 10-month low of $1.1981 last week .
The European Central Bank expects euro zone growth of 1.4 percent in 2005.
Snow reiterated the Bush administration's oft-repeated strong dollar policy, underscoring that the value of the currency is best set in open and competitive markets.
"As many times as I say it, I need to say it again: we have a strong dollar policy," he said.