Fed Signals Another Rate Hike Is Coming! What Does That Mean For Commodities?

The Fed’s Interest Rate Hiking: Fueling Global Crisis and Recession Risks

Conclusive evidence shows that the Fed’s aggressive interest rate hiking campaign over the last year has fuelled a global banking crisis, credit crunch and paved the way for a recession.

But yet, after 525 basis points of tightening and more specifically after 10 consecutive rate hikes –the Fed might not be done yet!

The stubbornness of high inflation is dividing the Federal Reserve over how to manage interest rates in the coming months, leaving the outlook for the Fed’s policies cloudier than at any time since it began raising rates back in March 2022.

Although prices are stabilizing, inflation remains well above the Fed’s 2% target – and that has Fed officials increasingly divided over their next move.

This week, a number of Fed policy makers signalled the need to continue raising interest higher as ‘insurance’ against inflation.

St. Louis Fed President James Bullard said, “the biggest risk for the Fed is that inflation doesn’t go down or even turns around and goes higher, as it did in the 1970s”.

Meanwhile, Dallas Fed President Lorie Logan said “the strength of the job market is contributing to high inflation, citing that job growth is more than twice what’s needed to keep pace with the growth of the labor force”.

That sound you hear right now, is “the Fed breaking things”.

After 10 consecutive hikes – the Federal Reserve has increased interest rates to 5.25% – the highest level since 2007 – and well into restrictive territory.

The further we go into restrictive territory, the more likely it becomes that we begin to see black swan events – just like we have seen recently with the second, third and fourth largest bank failures in history, which have all occurred in past two months.

And the impact of the Fed’s interest rate hiking campaign, doesn’t stop there.

Those hikes have pushed mortgage rates up by more than double and elevated the costs of auto loans. Credit card debt has surpassed $1 trillion for the first time ever. Bankruptcy filings are at their highest level since 2008. While overly inflated assets such as real-estate and equities are beginning to wobble.

Most economists have long felt that the Fed has gone one rate hike too far. Now with odds increasing of another rate hike coming next month – the biggest risk is that the Fed may overdo it.

Commodities Become Popular Under Uncertainty

During times like these, finding a safe place to store money becomes particularly important, which would explain why Commodities are everyone’s favourite trade once again!

According to a report released by the International Monetary Fund – Gold has become the world’s number one asset class of choice for those seeking protection, diversification and high returns on offer in this current economic climate.

The second most popular asset as revealed by the report, was Silver. Follow closely behind by Agriculture in third place.

Whichever way you look at it, one thing is clear. The case for Commodities in a well-diversified portfolio has never been more obvious than it is right now! Any substantial pullbacks should be viewed as buying opportunities because prices won’t stay low for long!

Commodity Price Forecast for May 19, 2023

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