Yesterday at the National Press Club, Fed Chairman Ben Bernanke delivered a lengthy sermon justifying his grand strategy for the US economic recovery.  In his discourse, the Chairman made it abundantly clear that, in his view, it was unfair to label Fed monetary policy as the cause of global increases in commodities prices, an issue some market pundits have speculated as of late.

Attacks on the Fed have been quite peculiar–some have even gone so far as to suggest US monetary policy played a role in the government collapse of Egypt.   Three decades of oppression would seem a more likely explanation.  But Bernanke’s statement was also peculiar:

It’s entirely unfair to attribute excess demand issues in emerging markets to US monetary policy.

“Entirely unfair?”  One would expect the Chairman to say to his critics that it is ‘entirely inaccurate’ or ‘misleading’.  But it does not seem entirely unfair to, at a minimum, examine a linkage between record high commodity prices and the Fed’s controversial, and highly unconventional, monetary policy.  This early in the game, it simply cannot be ruled out as a contributing factor.  Then again, that is the very problem- it’s too early in the game.

To provide a sensible explanation for his critics, Bernanke puts in plain words how the role of supply and demand accounts for price increases:

On the inflation front, we have recently seen significant increases in some highly visible prices, notably for gasoline. Indeed, prices of many commodities have risen lately, largely as a result of the very strong demand from fast-growing emerging market economies, coupled, in some cases, with constraints on supply.

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