Fed Head Says Oil Prices Driven by Supply & Demand

It’s an election year, so Congress is putting on some major theatrical displays to show they are concerned about the public’s pain at the pump. After all, theatrics are so much easier and cheaper than ever doing anything useful such as greatly increasing vehicle fuel efficiency in a short span of time, as well as promoting clean and economically viable alternative energy sources.

That not being the case, it might be more beneficial for the House and Senate committees to invite Federal Reserve Vice Chairman Donald Kohn to testify about high oil and commodity prices rather than summoning oil company CEOs and hedge fund speculators.

In a speech given at the National Conference on Public Employee Retirement Systems annual conference in New Orleans yesterday, Vice Chairman Kohn said increased demand and reduced supply are fueling oil and commodity prices, implying that oil companies and speculators are not part of the problem. Kohn also denied that the Fed’s monetary policy of low interest rates that in turn contribute to a weak 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.”

While there is definitely a supply and demand issue driving oil and commodity prices, a 180 degree turn in monetary policy would probably bring a half price haircut to their prices. But Congress will not call on the Fed head to testify because A it wouldn’t make for good TV, and B it would show that the Fed’s monetary policy only benefits banks and speculators.

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