A Midwest economist admits he’s not going very far out on a limb to say the two huge hurricanes that hit the Gulf Coast recently will have a negative effect on the U.S. economy. Creighton University economist Ernie Goss says higher gasoline prices are just part of the equation, as about seven in ten homes in Iowa are heated with natural gas. Goss says even before Hurricane Katrina hit, natural gas prices were up 30-percent from a year ago and have now jumped another 35-percent, with yet another possible rise in prices coming following Hurricane Rita. Goss is predicting higher inflation and rising interest rates will slow the economy enough to possibly trigger a recession. He also predicts the Federal Reserve will likely raise interest rates again before the end of the year, which would bring the base rate to four-percent. Goss says that makes the possibility of a recession much more of a probability. Goss says the Fed is slowing the economy with the significant danger of pushing us into a recession as they raise the rates to combat inflation. He says there’s a delicate balance of controlling inflation with rising interest rates and the Fed is narrowing the gap between short-term and long-term interest rates. Goss says when short-term rates get higher than long-term rates — it’s happened three times in the past two decades and all three times we had a recession. Goss says unemployment claims last week climbed to highest level in two years. He says inflation is especially hard of farmers because they don’t really have a way of passing on higher costs to consumers, so profits will be down significantly.
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