Traders remain on edge Wednesday amid rolling protests in the Middle East and North Africa. Oil prices hit a 29-month high and stocks tumbled overnight in Asia, Saudi Arabia and Dubai as Libya's civil war intensified and demonstrators clashed with police in the Iranian capitol.
It seems everyone is worried about the prospect of a supply shock emerging from the political upheaval in the region, and the accompanying inflationary pressures. Everyone, it seems, except Fed chairman Ben Bernanke.
Testifying before the Senate Banking Committee on Tuesday, Bernanke made the following comments in regard to higher commodity prices and inflation:
- -- Higher energy prices are likely to cause "at most, a temporary and relatively modest increase" in U.S. consumer prices.
- -- "Rising global demand for raw materials...coupled with constraints on global supply in some cases," are largely responsible for the recent increase in commodity prices, not the Fed's easy money policies.
- -- "While obviously as problem for a lot of people," higher gasoline prices don't yet pose a major threat to the recovery or inflation.
Of course, Bernanke likely feels he has to project calm about these issues and we can't know what he's really thinking, although it's very possible the Fed chairman sees higher energy prices as a reason to keep the monetary floodgates open wide because of the threat posed to the recovery.
Still, his statements suggest a lack of concern about inflationary pressures that is increasingly out of step with the experience of consumers, and action in the financial markets. The Fed prefers to focus on core inflation measures, which remain at multi-decade lows, but that doesn't help anyone who actually has to buy food, energy or other "volatile" commodities stripped out of the core rate.
On Wednesday, Bernanke will appear before the House Financial Services Committee for day two of his semi-annual testimony for Congress where he will most certainly face some tough questions about these and related matters. Stay tuned to Y! Finance for additional coverage throughout the day.
- Fed chairman Ben Bernanke