It’s being reported this afternoon that the Fed chairman, Ben Bernanke, has made a definitive statement about the dollar, saying the he believes the weak dollar is adding to inflationary pressures. This is an unusual statement from the Fed, as the Treasury Dept. is usually the group that speaks of the dollar. So what does it mean?

Analysts are pointing out that this is the first time that Bernanke has acknowledged the dollar impact on inflation - which is interesting that one of the more significant contributing factors to the dollar’s decline over the last couple of years has been the constant cutting of interest rates by the Fed, cuts instituted to help free up capital in order to stimulate a faltering economy. So, speculation is that Bernanke is going to take the inflationary pressure into account and will be much more conservative relative to future interest rate changes. This in turn, is going to make the US a more attractive investment market for foreign capital and should help strengthen the dollar - which could be very good for those of us that are impacted by the high price of crude.

As I discussed here, the weak dollar has had a significant impact on the price of crude oil. A strengthening dollar will help reduce the upward pressure on crude and could potentially even bring some relief in the price of gasoline.

Of course, nothing is certain in this market. We might see that any price relief brought by a stronger dollar is offset by an increase in demand…even so, continuing weakness in the dollar would certainly exacerbate an already bad situation.

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