MNI BRIEF: Dallas Fed Warns Of Commodities Feedback Loop

Sudden jumps in commodities prices can create a feedback loop that causes prices to rise further due to higher offshore dollar funding costs, a Dallas Fed blog published Thursday warned, but said the bar for central bank intervention is high.

Since Russia invaded Ukraine, prices of energy, foods and metals have experienced some of the largest increases since the 1970s and policymakers need to monitor the potential impact on financial conditions, analysts from the Dallas Fed's banking supervision department wrote.

"Recent evidence of risk management weaknesses at the London Metals Exchange -- the lack of monitoring of large positions, suspension of trading and the reported strains on multiple clearing members in nickel trading -- is a concern," they said. "That said, the threshold for central bank intervention in unregulated markets is high; it would be prudent for firms active in commodities markets to proactively assess and further strengthen their liquidity profiles."