Posted by Milos Sugovic 
Who’s to blame for unprecedented commodity prices? Many say speculators. More should be pointing a finger at the Federal Reserve.
The Fed’s interest rate cuts are causing damage in tandem with speculative attacks. Not only are commodities seeing demand shocks and supply shortages, but the interest-rate trend chips away at the value of the dollar, as capital flows are interest rate sensitive.
A depreciating dollar means appreciating import prices, which amplifies speculative bubble induced shocks. For a country heavily dependent on imports for daily needs, it’s not surprising that consumers are seeing their purchasing power hammered into the ground.
Monetary policy and commodity prices move in synch, and in a recession expansionary monetary policy is unlikely to help much anyway, as it reduces real income via inflation. The irony of it all is the Fed’s modesty about its role in the high commodity prices. Are we to believe that printing money will preserve the Fed’s inflation-fighting credibility?
Don’t worry, there’s still a reason to cheer: the Fed will stop cutting rates. The bad news is: the “whoops” came too late.
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