US credit rating cut on QE3

While markets cheered the Federal Reserve's launch of QE3 on Thursday, a rating agency took a dimmer view of the move. From Bloomberg:

Egan-Jones Ratings Co. cut its credit rating for the U.S. one level to AA-, citing the potential for the Federal Reserve’s third round of large-scale asset purchases to weaken the dollar and drive up inflation.

U.S. debt to gross-domestic-product has risen to 104 percent from 66 percent in 2006, Egan-Jones said today in a report...

The Fed’s latest program will “stoke the stock market and commodity prices, but in our opinion will hurt the U.S. economy and, by extension, credit quality,” Egan-Jones said. “The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers, thereby reducing consumer purchasing power.”

The US dollar has already weakened since the Fed announcement of QE3, falling to a four-month low against the euro on Friday.

Meanwhile, US economic data on Friday were mixed.

Retail sales rose 0.9 percent in August, helped by a 1.3 percent jump in auto sales. However, higher gasoline prices also contributed. Excluding autos and gas, retail sales rose just 0.1 percent last month.

Indeed, higher gasoline prices also contributed to a 0.6 percent rise in the consumer price index in August, the biggest increase since June 2009.

In any case, consumer sentiment has since improved. The University of Michigan and Thomson Reuters preliminary consumer sentiment index rose to 79.2 in September from 74.3 in August.

Industrial production, though, fell 1.2 percent in August, the largest fall since March 2009. According to the Fed, Hurricane Isaac’s impact on output from the Gulf Coast region contributed 0.3 percentage points to the drop.