So That's Why Food and Fuel Prices Are Increasing

The president of the Dallas Federal Reserve Bank, Richard Fisher, appeared on CNBC's Squawk Box this morning. In his appearance, he admitted that QE2 may have been partly to blame for the recent increase in the price of commodities. Fischer opposed QE2, and said he would oppose QE3. He stated that he believed that the Fed had done all that was necessary, and that the economy needed time to heal itself. He expressed an optimism that the U.S. economy would grow in the second half of 2011. Rounds of quantitative easing, known as QE, may have a bullish effect on commodity prices. QE is intended to increase the liquidity in the economy. If that liquidity finds its way to commodity traders, the price of commodities may rise. Simultaneously, speculators—even those who do not have access to the liquidity—may anticipate this rise and move into the commodity markets in anticipation of the bull-run. Fischer's hawkish stance echoes the sentiments of Philadelphia's Federal Reserve Bank President Charles Plosser, who stated on Monday that the Federal Reserve

despite economic conditions. Both Plosser and Fischer are voting members of the Federal Open Market Committee this year, so their beliefs may influence Fed policy. However, they are mere rotating members. The Fed's Chariman, Ben Bernanke, is scheduled to speak on Tuesday. It will be interesting to see if he expresses a position in line with Fischer and Plosser, or takes a more dovish stance.

Traders who believe that the Fed will not engage in further QE and may even tighten monetary policy, might want to consider the following trades:

Traders who believe that the Fed will crack under the economic pressure and engage in further rounds of QE may consider taking positions in the following: