Is Loose Monetary Policy Causing a Spike in Commodity Prices?

June 21, 2011 in Daily Bulletin

The idea that the Fed’s QE2 program has caused a rise in commodity prices has gained a lot of traction in recent times. Marc Chandler on The Street argues otherwise. He notes that commodities are not homogenous and argues that monetary policy is too blunt a tool to explain the different price changes in various commodity indices. Chandler also contends that significant investment actors such as pension funds would not invest in commodities in lieu of corporate bonds or other more traditional investment vehicles. Finally he suggests that a depreciated dollar caused by the Fed’s unprecedented policies is not causing the higher prices seen at home. He cites the unstable correlation between commodity prices and fluctuations in currency values as evidence for that argument. Read his entire article here.

Source: The Street