Commodity Traders Look To Fed As Inflation Surprises To The Upside

Phil Carr
Published: Feb 19, 2024, 19:26 UTC

The Fed kept rates on hold at the current range of 5.25% to 5.5% last month and reiterated that policymakers expect to cut rates at least three times this year.

In this article:

Commodities in the Spotlight: Unveiling the New Era of Macroeconomics Dominating Global Markets

Insights into the Decade’s Dominant Economic Narrative

It’s official – A new era of macro has begun and it will dominate every narrative of the global economy over the next decade.

To quote analysts at GSC Commodity Intelligence – macro opportunities are everywhere and they are here in abundance! That’s one of the most lucrative trends of the current financial climate that we find ourselves in right now.

And guess what? Once again, this week is about one thing and one thing only: It’s all about the macroeconomics with trader’s attention firmly focused on the U.S Federal Reserve.

In December, traders started pricing in around six rate cuts for 2024 after Fed Chair Jerome Powell signalled that officials will begin winding down rates from a 22-year high. That helped spur a widespread market rally that saw everything from the metals to agricultural commodities skyrocket to all-time record highs.

But after two hotter-than-expected inflation readings this month, fuelling concerns that inflation could re-accelerate – an interesting debate is raging over when the Fed will cut rates and how big the first rate cut will be.

The answer to that question may come from the hotly awaited release of the Federal Reserve’s January Monetary-Policy Meeting Minutes.

Since the Federal Reserve’s policy meeting in January, Chair Jerome Powell has pushed back against market bets on rapid interest rate cuts.

The Fed kept rates on hold at the current range of 5.25% to 5.5% last month and reiterated that policymakers expect to cut rates at least three times this year.

Traders expect the Fed will re-emphasise its hawkishness, maintaining that there is more progress to be made on inflation before officials finally pivot towards cutting interest rates.

Diving into the Fed’s Conundrum: Analyzing Economic Factors Impacting Interest Rate Cuts

According to GSC Commodity Intelligence – strong economic data, tight labor market conditions and persistently high inflation are just a multitude of factors that makes it very difficult for the Fed to cut interest rates too quickly.

In a note to clients, analysts at GSC Commodity Intelligence signalled that the timing of the first rate cut has been pushed out to June, while pricing in less than four cuts in total for 2024, down from six at the start of the year.

As always, traders will be scrutinizing every word of the minutes for fresh clues into the central banks future monetary policy plans and most importantly, confirmation of when the first rate cut will come – which is guaranteed to move the markets significantly.

Also on the radar this week will be a host of market-moving speeches from six Fed officials, with traders likely to pay very close attention to comments from Federal Reserve Governor Christopher Waller – one of the central banks most influential voices.

About the Author

Phil Carrcontributor

Phil Carr is co-founder and the Head of Trading at The Gold & Silver Club, an international Commodities Trading, Research and Data-Intelligence firm.

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