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Page added on September 14, 2012
QE3: Fed Primes Pump, Americans To Pay Even More At Gas Pump
The Federal Reserve announced a third round of quantitative easing Thursday afternoon, and it is big: A net $40 billion a month in additional purchases of mortgage-backed securities. And policymakers said additional accommodation will continue “for a considerable time after the economic recovery strengthens.”
But the impact of a big, open-ended QE3 is not so clear. The hope is that additional Fed action will lower interest rates, but they’re already at rock-bottom levels. Treasury yields actually have moved slightly higher after the Fed announcement.
Stocks have rallied, with the major averages up about 1% in mid-afternoon trading. That makes Wall Street happy — but what about Main Street? Ordinary Americans can expect to see higher gasoline prices. Quantitative easing also pushes up commodity prices — both by boosting demand for financial assets and by weakening the dollar.
Crude oil prices have been trending higher, and were up $1 to nearly $98 a barrel in mid-afternoon trade.
That will quickly filter down to gasoline prices at the pump. Gas prices moved back to $3.847 a gallon last week, the highest since April. They’ve risen for 10 straight weeks in part on anticipation that QE3 was coming. Gas prices could once again threaten the $4 level — it’s already well over that mark in California. And that’s with no major supply issues or feared disruptions around the world.
Higher oil and gas prices also could push food prices higher, by encouraging more corn burning to produce ethanol, as IBD’s Jed Graham recently noted. Corn prices are near record highs due to this summer’s historic drought.
The producer price index shot up 1.7% in August — the biggest jump in three years — on higher food and energy costs. Gasoline prices at the wholesale level exploded 13.6%. Food costs rose 0.9%, the most in nine months.
With job growth and wage gains so weak, higher food and gas prices will cut into consumers’ buying power on everything else. That will offset much of the modest QE3 benefits.
5 Comments on "QE3: Fed Primes Pump, Americans To Pay Even More At Gas Pump"
BillT on Fri, 14th Sep 2012 3:13 am
So, what’s new? This is the plan. Destroy the middle class.
It is proving successful in Europe and now is gaining speed in the Us.
Welcome to the 3rd world!
ohanian on Fri, 14th Sep 2012 8:58 am
My hero Helicopter Ben! Your idea is right, throw lots of money around so that people who horde money will realise that they are better off hoarding gold instead. So people who sells gold to people who hoards gold, will have so many money (from selling gold) that they will spend it all those creating jobs for everyone.
DC on Fri, 14th Sep 2012 11:38 am
The strangest thing in all this, is ‘mortgage-backed securities’ are nothing of the sort. This is, the secure part. There just credit default swaps by another name. Utterly worthless. Even more worthless than stocks. So 40 billion a month for paper representing abandoned matchstick and PVC homes in Arizona somewhere. And in many cases, they dont even represent anything *that solid*. I feel collapse(economic) getting much closer now. Am I wrong to think this?
Course when they collapse it will also take out whats left of the Mexican economy and will trigger the delayed housing bubble crash in Canada, which will in effect mean the same up north as it is down south. Or am I off base here? Is it possible this attempt to inflate the debt will work -sorta? We have to admit, TPTB creative accounting and can kicking has been able to keep things a lot more stable than would otherwise be the case these last few years, but does this QE3 signal they are just about out of tricks?, or will this kick the can again for a few more years? Really wondering about that…
Beery on Fri, 14th Sep 2012 4:11 pm
Americans need to pay a lot more at the gas pump if we’re to have any chance of a soft landing after the reality of Peak Oil sinks in. The slight increase that QE3 causes is nowhere near enough.
Ken Nohe on Fri, 14th Sep 2012 5:12 pm
QE3, turmoil in the Middle East, downturn in Europe, bubble popping in China, price of cereals going through the roof… 2013 is not born yet but it looks like a promising year and there is still plenty of time for the unexpected.
That’s what happens when you drive too close to the limit: Most of the time it’s fine, then suddenly, it isn’t anymore.
The barrel at 150 dollar looks like a lesser evil for now as we are still in the ‘buying time’ phase but soon the economy will screech to a halt and there will be no tools in the box left to fix it. It could well be sometimes in 2013.