High Crude Oil Prices? It's the Fed, Stupid

The Federal Reserve plays a key role in the price of oil, but lawmakers and leading media outlets seem to be busy looking everywhere else for a way to explain sky-high gasoline prices to a frustrated American public.

Congress on Wednesday held its 40th hearing this year to explore the issue, but the low target interest rate maintained by the central bank was barely mentioned. At the same time, Fed Chairman Ben Bernanke and his fellow central bankers elected to leave the central bank's fed funds rate target at just 2%, despite rising signs of inflation, for fear of hurting already weak economic growth.

Then on Thursday, OPEC President Chakib Khelil said the price of crude could go as high as $170 a barrel this summer due to the weak dollar, while debate in the media largely has centered on the role of speculators vs. supply and demand in driving up prices. The effects of monetary policy on the value of the dollar and market forces was almost totally ignored.

All this comes after Bernanke's predecessor, Alan Greenspan, has received withering criticism for cranking the Fed's rate target down to 1% in 2003 for about a year, which gave rise to a credit bubble whose aftermath is currently plaguing the U.S. economy and financial system. Since then, the fed funds rate target never climbed above 5.25%.

To be sure, geopolitical strains and global supply-and-demand forces are impacting the rising price of crude. But oil is priced in dollars and the dramatic decline in the value of the greenback of late has to be giving upward momentum to crude prices.

< Previous

1 2 3 4

Next >