Bernanke Breakdown: It's not my fault that the emerging markets have inflation
Per Bernanke, there is no evidence that the Fed's bond buying is causing food price inflation. In fact, it is working just as he suspects. He tacitly admits that the effect of QE gooses the stock market and sends yields down because interest rates fall. In fact, that was partly his reason for doing QE and QE2. Via WSJ:
“Since August, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels. Yields on 5- to 10-year Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases. All of these developments are what one would expect to see when monetary policy becomes more accommodative, whether through conventional or less conventional means. Interestingly, these developments are also remarkably similar to those that occurred during the earlier episode of policy easing, notably in the months following our March 2009 announcement of a significant expansion in securities purchases. The fact that financial markets responded in very similar ways to each of these policy actions lends credence to the view that these actions had the expected effects on markets and are thereby providing significant support to job creation and the economy.”But in a moment of blindness he states that supply and demand for commodities, not the Fed's policy, are causing higher food and energy prices. “The most important development globally is that the world is growing more quickly, particularly in emerging markets,” was Bernanke's response.
“I think it’s entirely unfair to attribute excess demand in emerging markets to U.S. monetary policy,” Bernanke said. Those nations can use their own monetary policy and adjust exchange rates to deal with their inflation problems, he said. “It’s really up to emerging markets to find appropriate tools to balance their own growth.”
Still, higher oil prices in particular do present risks to the U.S. They act as a tax, eating up consumers’ incomes at a time when the Fed is “trying to get consumers more confident,” Bernanke said. While overall inflation in the U.S. “is quite low,” he said, higher commodity prices would become a problem if they feed into wages or broader goods and services.