Confused as to how Bernanke can keep rates low and ignore obvious inflation in the commodity space?
Look no further than this chart from UBS (which we just posted).
It shows how anomalous our current situation is, where commodity prices are rising (input costs), but capacity utilization is low.
The basic idea is this: inflation is a global phenomenon, and if there are supply constraints, they’re outside the realm of the US economy and US monetary policy.
In the US, where Bernanke is looking, he sees none of the capacity constraints that would suggest he needs to hike rates. (Whether you agree or not with his analysis is irrelevant. This is what he’s thinking).