Last week, Federal Reserve Chairman Ben Bernanke held the first ever Fed press conference. During this press conference, Bernanke discussed the labor market, inflation, commodity prices, the housing sector, monetary policy and the overall health of the US economy. After listening to this staged event hosted by Bernanke, it is all too clear that the press conference was nothing more than a publicity stunt by the Federal Reserve in an attempt to gain public support for recent Fed policies. Since the Federal Reserve has been under attack by critics due to a serious lack of Fed transparency, Bernanke figured that holding a press conference would be a good way to give the public more insight about the Federal Reserve’s policies to calm overall criticism. In reality, this conference gave no real insight about recent policies, and showed how out of touch Bernanke is with American consumers by stating overall inflation is not affecting the US economy.
In his opening statement, Bernanke stated that increases in commodity prices are due to geopolitical developments and robust global demand. He also stated that there have not been any indications that inflation is getting bad enough to prompt the Federal Reserve to tighten monetary policy, and that the Fed will in fact carry out the rest of their US Treasury bond purchases to complete QE2 by this summer. When asked about QE2 and whether or not the program was successful, Bernanke stated the program has been very successful so far, and that the program has led to overall better economic conditions for the US. In making these statements during the press conference, Bernanke is either trying to trick the American people, or he truly is clueless about inflation and the current devaluation of the US dollar.
Since November 2010 when the Fed took action in pursuing QE2, commodity prices across the board have increased, and the US dollar index has declined. When looking at recent increases in commodity prices and the appreciation of foreign currencies in comparison to the US dollar, it is clear that inflation of the money supply has affected the value of the dollar, and that the Fed should do the exact opposite of what Bernanke stated they would do during last week’s press conference.
Two commodities that are the most sensitive to inflation are the monetary metals gold and silver. Gold hit all time record highs in 2010, and has skyrocketed since January 2011, now priced at over $1500/oz. Silver is near all time record highs ($50/oz in the 1980s), floating around $48/oz. In November 2010 when QE2 had just been announced, Silver was priced under $30/oz. Other metals such as Platinum, Palladium and Copper have increased in price over the past few months as well. Looking at commodities other than metals, oil/gas prices have also increased. Crude oil has significantly increased along with unleaded gas and heating oil. Natural gas prices have also increased since November 2010, although the increase hasn’t been as significant as the increase of other gas prices. Most food based traded commodities such as corn, soybeans, wheat, cattle, hogs and coffee have also increased in price since QE2 began. Along with these across the board increases in commodity prices, the US dollar index has declined in the past few months to around 73, approaching a 5 year low. Foreign currencies such as the Canadian and Australian dollars have recently surpassed the US dollar in value. When looking at the numbers, it is not hard to determine that the current increase in inflation is a problem, and that it is starting to affect the American people. If Ben Bernanke and the Fed do not wake up to this reality soon and take action in tightening monetary policy, the value of the US dollar will continue to decline and American consumers will continue to see a decrease in their standard of living.