To be sure, commodity prices did rise as interest rates fell. However, for many commodities, inventories have fallen to all-time lows, a development that casts doubt on the premise that speculative demand boosted by low interest rates has pushed prices above levels that would be consistent with the fundamentals of supply and demand. As interest rates in the United States fell relative to those abroad, the dollar declined, which could have boosted the prices of commodities commonly priced in dollars by reducing their cost in terms of other currencies, hence raising the amount demanded by people using those currencies. But the prices of commodities have risen substantially in terms of all currencies, not just the dollar. In sum, lower interest rates and the reduced foreign exchange value of the dollar may have played a role in the rise in the prices of oil and other commodities, but it probably has been a small one.

The rise in commodity prices presents particular challenges for monetary policy because such increases both add to near-term inflationary pressures and damp demand. A tendency for increases in commodity prices to become a factor in ongoing pricing and wage-setting more generally would be a worrisome development that would over time tend to undermine economic welfare.

It may be that the recent statements made by the Open Market Committee and the recent actions are engendering greater confidence in the dollar. We'll see over time.

... [Currency markets are] manic depressive ... they overshoot. We've had some volatility there, and I'd like to remind people that a lot of people made a mistake by selling the U.S. economy short for a long time.

[Fisher said he is] entertained when I read that today the dollar was weak or yesterday the dollar was weak because the U.S. economy is showing slower growth, then the next day it says it's because inflation was reported higher. I always feel like screaming, "Guys, make up your mind!" So I"m not surprised that the dollar strengthened. The question is what is the trend over time. ... You have to keep in mind that these are manic depressive mechanisms that overshoot on both sides. They're very emotional.

Mr. Fisher was concerned that an adverse feedback loop was developing by which lowering the funds rate had been pushing down the exchange value of the dollar, contributing to higher commodity and import prices, cutting real spending by businesses and households, and therefore ultimately impairing economic activity.

Markets are manic depressive ... interest rate differentials drive currency levels.

From Q&A as reported by Reuters, when asked about the dollar.

What I can tell you is that no central banker ... can be indifferent to the value of his currency.

From Q&A as reported by Market News International

Warsh said in response to a question afterward that any central bank, including the Fed, cannot be ``indifferent to the value of its currency.'' Three days ago, finance chiefs from the U.S. and other Group of Seven nations signaled concern on the dollar's slide and said the global economic slowdown may worsen amid an ``entrenched'' credit squeeze.

As reported by Bloomberg News

When asked whether he predicts a ``dollar crisis,'' he said, ``you don't have to predict it, you're in it.''

As reported by Bloomberg News

Fisher said that FX markets are "manic-depressive mechanisms".

"The mood comes and goes," Fisher said, noting that the days of the vvery weak euro exchange rate against the dollar were not so long ago. Fisher said that central bankers should not react to short-term movements in exchange rates.

From Q&A as reported by Market News International

... I'm not particularly concerned about any major change in the holdings of China or any other country.

There is, on the margin, sovereign wealth funds and portions of reserve accumulations that are being devoted to higher return, which means spreading across instruments, as well as across currencies.

But again, I don't see any significant change in the broad holdings of dollars around the country -- around the world.  Dollars remains the dominant reserve asset and I expect that to continue to be the case.

I would like to add, though, that the strength of the dollar, in the medium term, will ultimately depend not on those portfolio choices, so much as on the strength of the U.S. economy, our trade situation and on the openness of our financial markets to foreign capital.

And I'm optimistic on those fronts. And I do believe that that will lead to a sound dollar in the medium term.

``Clearly the exchange rate is a sort of asset price, and this can have important effects on the aggregate demand in an economy.''  

``What happens to the exchange rate is going to tell you about something that's going to happen to net exports.'' ...

In general, the exchange rate is ``something that you do want to pay attention to,'' though, as with other asset prices, not ``over and above'' other issues, Mishkin said.

From the Q&A session, as reported by Bloomberg News

Note:  prepared text is identical to Mishkin's September 21 speech.

Although private and government demands for dollar assets have allowed the U.S. current account deficit and foreign surpluses to persist, these imbalances are not sustainable indefinitely. In the United States, both public and private saving will need to rise to meet the oncoming needs of an aging population. At some point, risk-adjusted returns on investments in the rest of the world will begin to look favorable relative to holding dollar assets. Dollar assets are becoming an increasing proportion of non-U.S. portfolios; this can continue for a time, but not forever. At some point, the United States is going to need to finance its imports with the proceeds of its exports, not with foreign saving.

Experience with current account adjustments by industrialized economies--for example, by the United States in the 1980s--suggests that the transition to a more sustainable configuration is not likely to be disruptive. But we cannot be sure, particularly because the U.S. experience is unique given the dollar’s role as a reserve currency and Americans’ relatively favorable returns on assets held abroad. The world economy is in uncharted territory with regard to the size of the imbalances.

Continued strong demand for dollar assets will be critical to keeping that unwinding [of current account imbalances] smooth and not disruptive. The Federal Reserve can contribute by being sure the public remains confident that the purchasing power of their dollar assets will not erode unexpectedly. As long as inflation expectations remain contained, relatively faster growth of the prices of imported goods for a time would be associated with only a temporary bulge in inflation and would result in a needed change in relative prices.

As foreign holdings of U.S. assets increase, at some point foreigners may become less willing to add these assets to their portfolios. While it is likely that current account imbalances will be resolved gradually over time, there is a small risk of a sudden shift in sentiment that could lead to disruptive changes in the value of the dollar and in other asset prices.

I should like to raise the hypothesis that the reason the historically large US current account deficit has not been placing pressure on the exchange rate of the US dollar, at least to date, is that the deficit is a reflection of a far broader and long-standing financial development in the United States and elsewhere.  An ever-growing proportion of US households, nonfinancial busineses, and governments, both national and local, fund their capital investments from external sources...What is special about the past decade is that the decline in home bias, along with the rise in IT productivity growth and the rise in the dollar, has engendered a large increase by US residents in purchases of goods and services from foreign producers.  The increased purchases have been willingly financed by foreign investors with implications that are not as yet clear.