In a recent interview, Federal Reserve chairman Ben Bernanke gave full credit for the stock market’s recent 100 percent rise to the Fed’s Quantitative Easing (QE) policy of artificially lowering U.S. interest rates. Over the same period, the price of gasoline (NY Harbor Spot) surged 140% while the value of the dollar (Trade Weighted Exchange Index) fell 20%. Mr. Bernanke asserts this unwelcome rise in gasoline prices was a “coincidence” caused by demand from emerging markets, not Fed policy weakening the dollar. Statistical and quantitative analysis of stock and commodity prices from the last 5 years corroborates Mr. Bernanke’s assertion that QE did in fact contribute significantly to the U.S. stock market recovery. This same analysis however, shows the corresponding surge in gasoline prices was primarily due to a strong negative correlation with the U.S. dollar and that its steady depreciation since 2009 has been the single most important factor in determining what price consumers’ pay at the pump. In other words, as the dollar has fallen, gasoline prices have risen. Surprisingly, changes in supply and demand have statistically had little impact on price. The easiest way for policymakers to lower gasoline prices is to strengthen the dollar, but the unintended consequences of such an action may prove unpopular, especially during an election year.
|Presenter:||Steven Barber (Rochester Institute of Technology) -- firstname.lastname@example.org
|Time:||11:05 am (Session II)|