Fed tone may send food and gasoline prices higher

By Matthew Robinson and Barani Krishnan - Analysis

NEW YORK (Reuters) - Consumers battered by soaring energy and food prices may see little relief after the U.S. Federal Reserve cut interest rates on Wednesday and left the door open to further cuts.

The Fed on Wednesday lowered a key U.S. interest rate by a modest quarter percentage point and hinted the move could be the last in an 8-month monetary easing cycle.

But the central bank also suggested more rate cuts could be in store, possibly extending a commodities rally from last summer that sent prices to records as investors shifted money into the asset class to hedge against inflation.

The increases in food and fuel costs have triggered protests around the globe.

"There had been so much hope that they would say something that would give us some sort of indication that they were done with this insanity," said Peter Beutel, president of Cameron Hanover. "Every time they cut rates and leave the door open for another cut they basically are just giving away the store when it comes to commodity prices.

"A lot of these higher prices from the supermarket to the pump are the Fed's handwork," he added.

After the Fed started cutting rates in September, the U.S. dollar plumbed a series of new lows while oil prices have surged 60 percent to near $120 a barrel, propelling U.S. retail gasoline to a record $3.60 a gallon.

Interest rate cuts can boost liquidity in the financial markets, brighten the outlook for economic activity and demand, and weaken the dollar against other currencies which tends to bolster commodity prices.