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^ ^ e ~ in er ester FORECASTS FOR MANAGEMENT DECISIONMAKING 1729 H St. NW, Washington, DC 20006-3938 • kiplingerbiz.com • Vol. 85, No. 26 Dear Client: What to do about high gasoline prices? Lawmakers are scrambling for solutions. The list of ideas is lon>?: Politically popular but economically useless. Economically sound but politically suicidal. And everything in between. The list of what is actually doable is short. While politicians of all stripes deplore the high prices, there's an enormous gulf between the two parties on how to lower them. Here's how we rate the options. More offshore drilline: Not now...maybe later. Democrats say no to lifting the moratorium, Republicans are for it, and election year sparring will keep the debate roiling at least until next year. A modest expansion isn't out of the auestion in a few years, if states get a share of the lease cash. Reouirin~ current drilline leases to be used: Lengthening odds. More policymakers are being persuaded that not all leases can pan out. Tapping the Arctic National Wildlife Refuge: Not with Democrats in control of Congress. Washington, June 27, 2008 ~ ~ 1' ~ ® " GDP growth ~ . Slowing to 1% in 'OS .............................................................. ...... ... Interest rates Prime rate at 5.25% at year-end, .......... 10-year T-notes yielding 4.25% ............................................................... Inflation ' .......... Holding at 4% in O8 ............................................................... Job growth -- ' .......... Falling to 10,000 in 08 .............................................................. Crude oil .......... Averaging $110/barrel this year .............................................................. Housing sales .......... Falling 10% in 'OB ............................................................... Retail sales growth .......... Slowing to 2% this year ............................................................... Trade deficit Easing to 4.2% of GDP in '08 Complete economic outlook at kiplingerbiz.com/outlooks A federal anti-price-gou~in~ law: Yes, but it's lust afeel-good measure. Congress will set penalties and give the Federal Trade Commission a green light to investigate gasoline, natural gas, home heating oil and propane markets. But gouging is tough to prove, and all states already have such laws on the books. Taking legal action against OPEC: A pipe dream. The House passed a bill authorizing the Justice Dept. to haul foreign governments acting as a cartel into court. But the Senate won't go along, and such a move would trigger an international fracas. Curbing market speculation: A yes for more federal oversight...eventually. Federal regulators will gain authority to govern oil futures trading more closely, requiring more transparency and reporting of trades and possibly limiting the number of contracts any entity can hold. But no new law until 2009, after months of yakking. As for an outright ban on oil market speculation: No wav. Wall Street will prevail, arguing that reasonable speculation is needed for markets to function. Suspending, federal has taxes: Dead. It would just spur more gasoline use. Hiking_gas taxes: Also dead. It's politically untenable, and with pump prices at record highs, even advocates recognize that conservation is already getting a push. Reinstating a 55 mph speed limit: Ditto. Congress wouldn't dream of it. More nuclear power: Yes. Barack Obama and John McCain both support it, and it will be essential for fueling the widespread growth of plug-in vehicles. Easing refinery regulations. M~be. It'd be easier to facilitate expansions of existing Gulf Coast refineries than to build new ones. Still, green groups will howl. The Kiplinger Letter (ISSN 1528-7130) is published weekly for $1171one year, $199(nvo years, $263lthree years Subscription ingllirlBS: 800-544-0155 or subservices@kiplinger.cvm by The Kiplinger Washington Editors, 1729 H SL, NW, Washington, DC 20006-3938. Editorial In/Ormati0n: Tel., 202-887-6462; Fax, 202-7788976; POSTMASTER: Send address changes to The Kiplinger Letter, PA. Box 3295, Harlan, IA 51593. E-mail, letters@kiplingercom; or Web site, kiplingerbiz.com