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.

By keeping interest rates low, the Fed is raising the supply of dollars and other forms of liquidity in the financial system, thus weakening the value of the U.S. currency. But the lack of scrutiny of the central bank in the current oil debate is curious.

"We suspect that at least some of the liquidity being pumped into the system by the Fed is going into the oil market," says RGE Monitor analyst Rachel Ziemba. "There are global supply-and-demand forces driving oil prices on a long-term basis, but in the short-term, the Fed's actions must be lending momentum to the market."

A spokeswoman for the Fed declined to comment.

It's difficult to figure out exactly how the Fed's manipulation of the money supply is affecting the energy markets. The Fed reports that its broadest measure of the money supply, M2, increased by 6.3%, or $457 billion, over the last 12 months.

While the Fed is expanding the monetary base in an attempt to stimulate the sluggish economy and cushion the financial system against the ravages of the credit crunch, some observers say it's driving speculation in the red-hot energy markets.

Some lawmakers have pointed fingers at unnamed speculators for high prices, and big oil companies like

Exxon Mobil

(XOM) - Get Report

and

Chevron

(CVX) - Get Report

have pushed to loosen current restrictions on domestic oil drilling.

The central bank is designed to be independent from the federal government in its decision-making, but Congress created the central bank and it does have oversight responsibilities for it. The Fed's decisions on interest rate policy are

particularly sensitive

during an election year. This time around, rate hikes would be viewed as a boost for Democrats, while further rate cuts would favor the incumbent Republicans in the fight for the White House.

The Fed has slashed interest rates by 325 basis points since the credit storm made landfall on Wall Street last summer.

On Wednesday, the Fed elected to keep rates steady, with only Dallas Fed President Richard Fisher dissenting from the decision in favor of a rate hike.

While the Fed took no action, meeting expectations on Wall Street, it did talk tough about inflation in its policy statement.

"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the central bank said.

The Fed also reiterated its longstanding -- but so-far woeful -- forecast that inflation pressures will soon abate as oil prices moderate.

"However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high," said the Fed.

Despite those statements, futures markets show that expectations for rate hikes from the Fed later this year are waning. Crude oil prices set a new record above $142 a barrel in trading on Friday, while the dollar weakened against other major currencies. The

Dow Jones Industrial Average

, meanwhile, made new lows for 2008, with shares of

General Motors

(GM) - Get Report

hovering near a 53-year low.

Bank shares have also been crushed of late, with

Merrill Lynch

( MER) dipping Friday after a Lehman Brothers analyst said it expected $5.4 billion in fresh writedowns in the second quarter, due to downgrades to bond insurers

MBIA

(MBI) - Get Report

and

Ambac

( ABK).

Anthony Crescenzi, chief bond market strategist with Miller Tabak and a contributor to

RealMoney.com

, said in a note Thursday that the dollar was declining in response to lowered expectations for rate hikes from the Fed.

"Weakness in equities is spurring a flight into investment strategies that are working, such as buying commodities," said Crescenzi.