What Does A Central Bank Induced Recession Mean For Commodity Prices?

Inflation and Latest Rate Hikes

There is no denying that the second half of 2022 has been monumental for monetary policy as central bankers across the world ramped up their fight against rapidly surging inflation while acknowledging that inflationary pressures could persist for years – exacerbated by the war in Ukraine, on-going supply chain shortages and the effects of surging energy prices.

In June, the Federal Reserve dropped a bombshell on the markets by raising interest rates by 75 basis points with Fed Chairman Jerome Powell signalling yet more “super-sized” rate hikes ahead.

And he definitely wasn’t kidding.

Last week, the Federal Reserve raised interest rates by another super-sized 75 basis points for the second month in a row.

The latest rate hike means the central bank is in the throes of the most aggressive cycle of monetary tightening since 1981. It follows a 50 basis point rate hike in May and a 75 basis points rate hike in June – the first of that magnitude since 1994.

After hiking rates by 200 basis points in the last 60 days, Jerome Powell signalled that another “super-sized” hike could be on the cards for September – all, of course, depending on the macro data.

Between now and the September FOMC meeting, there are two U.S. employment reports, two inflation data releases and the highly anticipated Jackson Hole Symposium – which all have the potential to move the markets significantly.

As the Federal Reserve continues to raise interest rates in its fight against the highest inflation in more than four decades, several key indicators have begun flashing warning signs of a slowdown in economic growth.

“Technical Recession” in the U.S.

On Thursday, the Bureau of Economic Analysis confirmed that the U.S economy has plunged into a “technical recession”, which is officially defined by two consecutive quarters of negative GDP growth.

According to economists at Goldman Sachs, since 1955 “the U.S economy has always experienced a recession within two years from every quarter in which inflation was above 4% and unemployment was below 5%, as it is today”.

If history has taught us anything, then the one thing that we do know for certain is both scenarios, whether that’s persistent Inflation or a recession, ultimately present an extremely lucrative backdrop for commodity prices.

Impact on Commodity Prices

Following last week’s Fed rate hike and GDP data – Gold prices posted their biggest weekly gain in five months, while Silver prices notched up a 9% weekly gain. The bullish momentum also split over into other commodities with Aluminium, Copper, Palladium, Platinum, Nickel, Zinc and Oil prices – soaring to fresh multi-month highs.

Commodity Price Forecast for the Week 1 – 5 August, 2022

Right now, Commodities remains a traders’ market packed with endless opportunities to capitalize on the short-term macro-driven volatility!

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