Quote of the day

I believe that Harvard Professor Jeff Frankel has the correct explanation-- commodity prices at the moment are being driven by interest rates, with a strongly negative real interest rate increasing the incentives for speculation in any storable commodity.--James Hamilton

Here was my explanation in the beginning of the month:

Inflation seems to be most intense in commodities, with oil reaching inflation-adjusted record highs, and certain metals and crops also hitting nominal record highs. The CRB Index has risen 35% in the last 6 months. But I think a significant part of this movement is frenzied speculation fueled by easier money.

If the Fed comes out and says inflation is a problem and raises rates, it may actually pop the commodities bubble. Then consumer inflation eases. If it eases enough, then household spending power goes up, thereby saving jobs (which is what the Fed is trying to do by cutting rates).