A bubble has formed in commodities as speculative fervor returns to markets after the global financial crisis, veteran Wall Street economist Henry Kaufman said on Monday.

There are bubbles in commodities, and probably in the gold market as well, Kaufman, president of financial consulting firm Henry Kaufman & Co Inc in New York, told the Reuters Investment Outlook Summit in New York. He cited the return of leveraged bets as one driver.

Because commodity markets are small compared with some other financial markets, comparatively modest shifts out of other assets could increase the risks in commodity markets, he said.

Kaufman also cited some risks to the U.S. dollar and said it is debatable whether the dollar is bottoming, though he added that the currency's retreat has so far been orderly, and that inflation is not likely to be a problem for the foreseeable future.

However, the speculative fervor where participants are borrowing heavily in short-dated markets might be a risk for the dollar, Kaufman said.

Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in dollars in recent months to purchase higher-yielding assets in so-called carry trades.

Kaufman said he did not expect the U.S. government to take any action to stabilize the dollar.

Longer term, if the U.S. economic recovery is more anemic than that in some other major economies, that will weigh more on the dollar, he added, citing the area between 80 yen and 85 yen per dollar as a testing point.

Despite some analysts' concerns that the huge amount of U.S. government debt issuance will ultimately pummel the dollar and push U.S. government bond yields steeply higher, Kaufman expects the 30-year Treasury bond's yield will rise only moderately to about 5.5 percent by early 2011, from about 4.4 percent now.

Kaufman became known as Dr. Doom for correctly forecasting higher inflation and interest rates when he was chief economist with Salomon Brothers in the 1970s and 1980s. He is also known as an expert on the Federal Reserve.

Despite the U.S. central bank's missteps in the lead-up to the global financial crisis, the Fed should still regulate financial institutions, said Kaufman.

Just because the Fed's performance has not been the best in the last 20 years, that still does not mean we should have a separate supervisory authority, to regulate banks, he said.

Kaufman has long advocated a new regulator for institutions, provisionally called the Federal Financial Oversight Authority, which would be under the Fed's umbrella.

The chairman of that agency should be a voting member of the Federal Reserve's policy-setting Federal Open Market Committee, he said.

To strip regulatory power from the Fed wouldn't make sense because monetary policy and the flow of credit is so closely linked to the role of financial institutions, he said.

(Additional reporting by Gertrude Chavez; editing by Jeffrey Benkoe)

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