Oil and the Fed

So the Federal Reserve is signaling that its rate-cutting binge may finally be over, and we can be grateful for that small favor. The consequences of its easy-money bender will roll through the economy for years to come, however, so it’s important to draw the right lessons.

All the more so because the Fed’s most senior officials continue to insist that recent price increases have almost nothing to do with . . . monetary policy. Imagine that. The latest to wash his hands of responsibility for the value of the currency is Donald Kohn, the Fed’s current Vice Chairman and long-time resident intellectual. In a speech in New Orleans this week, Mr. Kohn acknowledged soaring oil and food prices, but he blamed them on global supply and demand for corn, oil and so on.


“As interest rates in the United States fell relative to those abroad, the dollar declined, which could have boosted the prices of commodities commonly priced in dollars by reducing their cost in terms of other currencies,” Mr. Kohn explained. “But the prices of commodities have risen substantially in terms of all currencies, not just the dollar. In sum, lower interest rates and the reduced foreign exchange value of the dollar may have played a role in the rise in the prices of oil and other commodities, but it probably has been a small one.”

If Mr. Kohn really believes this, we’re in more trouble than we thought.

Wall St. Journal