Expert Zone

Straight from the Specialists

How QE3 changes commodity prices

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

On Sept. 13, the U.S. Fed announced the QE3 program whereby it purchases mortgage-backed securities at $40bn per month with no time limit. It also pushed out guidance on keeping a low funds rate to mid-2015 from late 2014.

Officials also maintained a strong bias toward further easing with the labour market, the key determining factor on whether there will be further monetary easing. If employment does not improve, then the Fed is open to more easing to help lower the unemployment rate.

UBS has been bearish all year, on the view that capital outflows out of emerging markets would force companies there to run their businesses for cash and to destock commodities. Until last week’s QE announcement, we had planned to hold that view until credit stress rose sufficiently in the United States to raise deflationary pressure and then to force QE.

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