This is a new all-time low for a Federal Reserve Bank. The SF Fed is out with one of the worst cases of datamining I have ever seen in my life. Their conclusion – not only is QE2 putting no upward pressure on commodity prices, but it’s actually causing commodity prices to FALL. They write:
“Our analysis does not provide evidence that Federal Reserve large-scale asset purchases fueled the rise in commodity prices. It shows that, despite the fall in long-term interest rates and the depreciation of the dollar, commodity prices fell on average on days of LSAP announcements. The effects were more pronounced during the first round of LSAPs. The results may have occurred because the LSAP announcements heightened investor concerns about risk or led them to revise downward their growth expectations. Thus, other factors, such as growth in emerging market economies, are more likely to be the main drivers behind the recent rise in commodity prices.”
I am not even sure what to conclude here. This sort of analysis is not even worthy of refutation. The Fed doesn’t help their cause when they allow nonsense like this to be published. It is pure propaganda. I can see how one can make a fundamental argument with regards to the fundamental transmission mechanism of QE2 and its relationship to fundamental price changes in commodities, however, to reject the powerful psychological impact of QE2 and the obvious correlation between prices and this policy is beyond absurd. To conclude that it is putting downward pressure on prices is difficult to even take seriously.