Just when we were all hoping for some relief at the gas station this autumn, the Federal Reserve announced its third round of quantitative easing, weakening the dollar and sending oil prices higher- gasoline is sure to follow.
The program, dubbed QE3, works like this: the U.S. central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions with newly created money. In turn, this sends the value of the U.S. dollar lower, the global currency of crude oil, thus making oil more expensive to buyers holding American Dollars.
We're seeing oil prices tinker on triple digits as a result, and it may not get a whole lot better. Since QE3 is expected to keep the dollar weak, it may keep oil prices elevated, and thus oil and gasoline prices high. As the economy has weakened during Obama's presidency, the Fed has continued its loose monetary policy, keeping the dollar weak thus oil prices strong, since oil is globally traded in dollars. Essentially, this makes oil more attractive to use as a hedge against inflation, and makes oil cheaper for countries holding stronger currency against the dollar.
The trickle down is that prices at the pump may not fall as quickly, nor as much as earlier expected. Why? We're still dealing with the slow increase of production from the fallout from Isaac, and now the Fed is beating the strength of the dollar. It's a recipe for high gasoline prices, and September may close out as the most expensive September at the pump in history-- and it's not over yet!