The Fed has to hope that commodity inflation flattens out or retreats because that is all that they can do. They cannot meaningfully raise rates because our domestic economy is too weakened and fragile and they cannot afford to indirectly slow the BRIC countries down significantly because they are the growth engine of the world economy. I think that they are willing to live with $100+ oil as long as it does not continue to rise much further. The high oil price is doing the work of the central banks because it is causing an economic drag and at the same time stimulating development of alternative sources of energy. Controlling inflation does not necessitate prices going down, it only necessitates a reduction in the YOY growth of prices.

Curt R. Stauffer
Chief Investment Officer
EHD Advisory Services
email: crstauffer@ehdadvisory.com