Economy Watch: Gas, Oil Prices to Drift Lower; Yellen to Defend QE3 Before Congress

The U.S. Energy Information Agency says that the annual average retail price of regular gasoline, which was $3.63 per gallon in 2012, is expected to average $3.50 a gallon in 2013 and $3.39 a gallon in 2014. And the Fed released testimony that Ben Bernanke's successor, Vice Chair Janet Yellen,

The U.S. Energy Information Agency predicted on Wednesday that the economy – consumers and businesses and anyone else concerned with driving a gas-power vehicle – is going to catch a break next year because of lower gas prices. The agency says that the annual average retail price of regular gasoline, which was $3.63 per gallon in 2012, is expected to average $3.50 a gallon in 2013 and $3.39 a gallon in 2014.

The price of gas has already been moving down. The weekly U.S. average price has fallen by more than 40 cents per gallon since the beginning of September, according to the latest Short Term Energy Outlook published by the agency. EIA’s forecast for the price of gasoline averages $3.24 per gallon in the fourth quarter of 2013, 10 cents a gallon less than forecast in last month’s report.

Underlying falling gas prices are falling oil prices. The North Sea Brent crude oil spot price averaged nearly $110 per barrel for the fourth month in a row in October, but the EIA expects it to decline gradually, averaging $106 per barrel in December and $103 per barrel in 2014. Projected West Texas Intermediate crude oil prices will average $95 per barrel during 2014.

Yellen Plans to Defend QE3 Before Congress 

On Wednesday, the Federal Reserve released testimony that Vice Chair Janet Yellen plans to give a speech on Thursday at her confirmation hearings before the Senate Committee on Banking, Housing, and Urban Affairs. Yellen has been nominated to succeed Ben Bernanke, whose term ends in early 2014.

The remarks might best be described as “moderately” or “modestly” optimistic – to use two of the Fed’s favorite terms when talking about the economy. “We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession,” she said in the text. “Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to continue to do so for some time.”

Unsurprisingly, Yellen expressed her support for the Fed’s bond-buying program, and didn’t say anything specifically about tapering it, though in principle she says that is going to happen. “A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases,” she said. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” We’ll end it when we end it, in other words.

Wall Street had a positive day on Wednesday, with the Dow Jones Industrial Average gaining 70.96 points, or 0.45 percent. The S&P 500 was up 0.81 percent and the Nasdaq advanced 1.16 percent.