Pullback In Commodities Sets The Stage For Next Leg Higher – What’s Next?

The Rate Hike Extravaganza

Last week the Federal Reserve and its central-banking peers upped their game on inflation by unleashing four days of rate hikes – nicknamed “The Rate Hike Extravaganza”.

In one of the most sudden shifts in global economic policymaking seen in decades, central bankers launch a co-ordinated assault on inflation – delivering an historic tally of interest-rate hikes totalling more than “700 basis-points combined”, within a single week.

The Swedish Riksbank kicked off the action on Tuesday with a mammoth 100 basis point rate hike, its biggest interest rate increase in three decades. On Wednesday, the U.S Federal Reserve announced a third consecutive 75 basis point rate hike – taking its benchmark lending rate to a new target range of 3%-3.25%. That’s the highest since the global financial crisis in 2008.

Elsewhere, Switzerland, Saudi Arabia and the UAE also played copycat with their own 75 basis point rate hikes, which for Switzerland meant ending the period of negative rates that started in 2015. The Bank of England on Thursday raised interest rates by 50 basis points to 2.25% – the highest since the global financial crisis, with a firm promise of further rate hikes to come. Even in Japan, which has long adopted negative interest rates, felt it was now or never to jump on the rate hike bandwagon.

Perhaps the most important take away from this round of rate hikes – was the “like for like” economic projections put out by the Fed and its global peers – stating that “inflation is likely to accelerate further before it begins to moderate”.

The hard fact is that as long as we have interest rates below the inflation rate, even if they’re higher, they’re still negative – and negative interest rates put upward pressure on inflation. Ultimately, you can’t fight inflation with negative interest rates. That’s like trying to put out a fire with gasoline!

Surprisingly, this is something central bankers still don’t seem to have figured out, which is leaving them spinning their wheels and hardly even getting close to bending the curve on inflation.

Historically, the Federal Reserve and its peers have never been right on monetary policy and have a proven track record of setting the economy up for an even bigger crisis.

Only time will tell if global policymakers are right this time around, or on the verge of yet another a major policy error.

However, the one thing we do know is that extraordinary times create extraordinary opportunities and right now, this market is a traders dream – packed with unlimited money-making opportunities to capitalize on the short-term macro-driven volatility!

Commodity Price Forecast Video for the Week of September 26 – 30, 2022

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