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ETF Specialist

Interest in Commodity ETFs Remains High Due to Fed

Investors look for an inflation hedge in broad commodity ETFs.

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Since 2008, the federal-funds rate has been driven to near-zero in hopes of stimulating economic activity. Facing anemic growth, however, the Fed has been forced to turn to less conventional monetary policy. Ben Bernanke's most recent speech seems to have left market participants with a key take-away--a second round of quantitative easing, or QE2, is likely on its way.

Those unfamiliar with monetary policy should note that the "quantitative easing" process we are referring to is the one in which the central bank credits its own accounts and purchases financial assets, thus injecting additional funds into the system in hopes of stimulating the economy. The expansion of the Fed's balance sheet will effectively increase the nation's money supply, which some fear will result in further debasement of the U.S. dollar. By definition, inflation occurs anytime the number of dollars chasing a fixed pool of assets increases, so quantitative easing is an inherently inflationary measure.

Abraham S.H. Bailin does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.