Commodity Markets Analysis – Can The Fed Fight Inflation Without Causing A Recession?

Commodity Markets Fundamental Analysis

It is becoming more evident, day by day, that Central banks across the world are fighting a losing battle against rapidly surging inflation and no matter what actions they take now, it will be nowhere enough to tame ever-rising inflationary pressures.

Looking back throughout the whole of 2021, Fed Chair Jerome Powell played down the biggest year-on-year rise in inflation seen in more than four decades – characterizing the record spike as “transitory”, which inevitability will always be remembered as the worst inflation call in the history of the Federal Reserve.

Fast forward to today – inflation is running at a 41-year high and still rapidly accelerating.

To regain its credibility, the Fed must now be seen to move more aggressively on rate hikes, which ultimately means, Stagflation is now a major risk to the economy in the second half of the year, or worst still a recession.

As traders very well know – Monetary policy is a blunt instrument, not capable of surgical precision.

There is generally a very narrow path in successfully engineering a slowdown without causing unintended economic damage. Right now, that path looks extraordinarily narrow given just how far the current rate of inflation is away from the Fed’s preferred inflation target of 2%.

Historically, 11 of the last 14 Fed tightening cycles since World War II have been followed by a recession within the next 12 months.

Will the Fed get it right this time?

Only time will tell, however one thing we do know for certain is that Equity markets tends to lose altitude once the Fed begins its tightening cycle. This inversely presents huge bullish tailwinds for the entire commodities sector ranging from the metals, energies to soft commodities – as they are viewed as one of the most reliable hedges against economic risk, inflation and recession.

So far this year, 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains already – And this is just the beginning!

To quote Goldman Sachs, “they have never seen the Commodities markets this bullish before”.

Commodity Price Forecast Video for the Week 2 – 6 May 2022

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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