Commodity prices rise with US Dollar vulnerability

Along with soybeans and gold, corn and crude oil have also risen to multi-week highs this morning. The USD has shown more vulnerability to the down side (see the chart of the US Dollar index, which is wrongly dated 12-25). There is a significant, if not strong, inverse correlation between the US Dollar and many commodity prices, especially commodities that are connected to inflation (gold) or fuel (soybeans, corn, crude oil). Even wheat was up 16 cents before collapsing later in the session.

Commodity inflation continues to swell with strong prices throughout the sector. What will the Fed do?

The Fed's Behavior

Probably they will continue to throw money at it, based upon observation of past Fed behavior. One must keep in mind that the Fed governors are all career bankers (except Bernanke, who is an academic), so group-think is their mentality. They operate with group-think banker's blinders in crises, so they are likely to react as the have in times past. Perhaps they don't realize that this kind of thinking and reactions are the cause of the problem, not the solution. The more they do it (create more and more money, which they call "liquidity"), the more they will reinforce the inflationary bias of the markets, and the more they will inject turmoil into the financial sector of the economy. They are amplifying a latent sense of panic that is building, and the more they interfere, the more they multiply this latent panic. They are almost guaranteeing a recession by interfering and creating such turmoil. They apparently don't realize that with so much Feddling (Fed + meddling = Feddling) they are creating a sense of panic in the markets. Ultimately, panic leads to greater turmoil and will eventually cause investors to remove money from the markets. I don't think this has happened en mass yet.

Unfortunately, the current election cycle is going to create even more pressure on the Fed to "do something!", so they probably will. Congress may act as well, which will also create more turmoil still. Turmoil in the financial markets appears to be the operative word to remember for the foreseeable future.