The US sharemarket surged to its highest level since mid-2008 overnight, clearly showing that investors had no fear of what US central bank boss Ben Bernanke might say at his historic press conference later today.

Of course, Bernanke’s message has already been pretty well signalled. He’s widely expected to signal that the central bank’s $US600 billion bond-buying program will finish — as scheduled — at the end of June. But the bank is also likely to announce that it will keep its balance sheet steady by reinvesting the proceeds — about $20 billion a month — from maturing Treasury and mortgage securities.

What’s more, the pundits are tipping that Bernanke will aim for a “dovish” tone in the press conference, emphasising his concerns about stubbornly high unemployment levels, and risks to the US economic recovery. The basic message should prove an extremely soothing one for investors. The end of QE2 doesn’t portend a new round of tightening by the US central bank. It’s merely the end of the bank’s extremely stimulative monetary policy.

Of course, one reason that the US feels justified in keeping interest rates extremely low is that the US central bank sees recent rises in commodity, energy and food prices as the result of external forces, primarily higher global demand, combined with pressure on the oil price due to recent political upheaval in the Middle East. It justifies its decision to keep interest rates low by pointing to the feeble US housing market, and the continuing high levels of unemployment, while vehemently rejecting the allegation that excessively loose monetary policy in the United States is fuelling global inflation.

The US is not alone. Central banks in other major economies are taking a similar tack. The Chinese authorities are worried that higher rates could choke economic growth, and as a result increases in Chinese interest rates are barely keeping pace with rising inflation.

Earlier this month, the Bank of England decided to keep its policy interest rate at 0.5%, even though inflation had been running above its target rate of 2% for more than a year. The bank acknowledged that inflation was likely to rise further, due to higher energy and commodity prices, but concerns over weak UK economic activity made it extremely reluctant to raise rates.

Three weeks ago, the European Central Bank was sufficiently worried about rising inflationary pressures, caused by rising energy, food and commodity prices, to raise its policy rate by 25 basis points. Still, the rate, which is now 1.25%, remains extremely low.

The problem is that all the major central banks are taking the view that external factors are causing the rises in food, energy and commodity prices, and that therefore they don’t need to raise interest rates to tackle these inflationary pressures.

But while this may be true for individual countries, it isn’t true for the world as a whole. Commodity prices are surging for a number of reasons, including the move by the world’s central banks — collectively — to flood global financial markets with liquidity by printing money, and their decision to keep global interest rates extremely low. This situation is likely to become even worse if, as seems likely, Japan starts printing money to finance the reconstruction effort needed after its recent devastating earthquake and tsunami.

Most central banks use economic models that treat inflation as largely a domestic concern. Simply put, when an overheating economy causes a build up in inflationary pressures, then it’s the job of the central bank to raise rates in order to cool the economy. But these models don’t provide answers on what to do when inflation is rising due to external factors.

By and large, central banks have taken the view that keeping interest rates extremely low is the right response for maintaining growth in their domestic economies, even though this means that global monetary policy is far too easy.

As a result, global inflationary pressures will continue to rise which will eventually cause investors to become much more uncertain about the future.

*This article was originally published at Business Spectator