Shock and Bore
Promises, promises: quantitative easing the act of printing money to add excess money supply to the banking system by central banks to create inflation to combat deflation has been the policy tool that the Federal Reserve has used to in their mind have us avoid a "Great Depression". Of course with the economy still sputtering and jobs growth anemic the Fed wants to do it to you one more time. The talk of "Quantitative Easing 2" by your Federal Reserve has been the overriding global economic force that driven the price of just about everything on the globe whether it be commodities or equities or bonds. The anticipation of the Fed's awesome money printing power has had the world markets giddy with excitement as they search for clues how the Fed was going to wow this moribund economy into a vibrant job creating monster. Yet if the Wall Street Journal is right then instead of QE2 being compared to a luxury liner it appears now that the market may compare it to a dingy. The Wall Street Journal is moving markets by reporting that the Federal Reserve is likely to unveil a program of U.S. Treasury Bond Purchases worth a few hundred billion dollars over several months. A measured approach in contrast to the purchases of nearly $2 trillion it unveiled during the financial crisis. In other words not the "shock and awe" that many traders in the marketplace were hoping for. In fact some are beginning to wonder "What is the point? Why even bother? Oh sure we see the Tips showing that the market expects the Federal Reserve to be successful in revving Inflation and inflation expectations but without a major jolt to the economy with a massive influx of cash is this next round of QE2 being wasted. Is it possible that the Fed already achieved their goal by driving up the price of oil by $10 a barrel or Cotton prices to the highest level since the Civil War? Or is the Fed having second thoughts about the fallout from another round of currency devaluation.
For oil and other commodities this is critical. We know based upon post Fed Meeting market moves that the price of oil has at least a $10 a barrel QE2 premium built into the price. If the oil by artificially driving up prices. With the QE2 disappointment and the strike in France winding down we should see the petroleum markets feel heavier moving forward. Market start to take some of that premium out it could change the trend of oil once again. The oil bulls, OPEC and other oil producers have been bailed out by the Fed just as much as the banks. Without the Fed, oil would have been forced to find a deflationary bottom by falling so hard to a level where demand would have been encouraged. How low of a price that might have been we will never know as the Fed stepped into the way.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.