What’s Next For Commodity Prices As Fed Eyes Biggest Rate Hike Since 1994?

US Inflation and Federal Reserve Rate Hikes

Just one month ago, Federal Reserve Chairman Jerome Powell said that the central bank was not “actively considering” raising interest rates by three-quarters of a percentage point to fight inflation. But after Friday’s sizzling consumer price data showed inflation is rising much faster than expected – traders are convinced that the Fed may have to change its tune.

Over the last 12 months, inflation has spread to every corner of the economy with primary Cost of Living Expenses from Food, Fuel, Rent, Clothing and Energy prices – rising at double-digit annual rates for the first time since the early 1980s. U.S CPI data released on Friday, once again showed a further surge in those unavoidable areas of spending with Consumer Price Inflation rising at its fastest pace in 41-years.

The latest surge in consumer prices and inflationary pressure will probably spur Federal Reserve officials to consider the biggest interest-rate hike since 1994.

Those bets hardened on Monday after a long list of leading Wall Street banks increased their rate hike expectations, signalling a larger move was now in play.

Goldman Sachs and Nomura both shifted their forecasts on Monday to a 75 basis-point rate hike from 50 basis points previously. JP Morgan, Barclays and Jefferies also modified their calls to a 75 basis point hike this week.

There’s no denying, Powell and his colleagues at the Federal Reserve, face harsh criticism for being too slow to remove emergency pandemic stimulus and allowing inflation to climb at the fastest pace in 40 years. Throughout the whole of 2021, the Federal Reserve played down the biggest year-on-year rise in inflation seen in more than four decades – characterizing the record spike as “transitory”.

A 75 basis-point increase could boost credibility by showing the Fed is serious about tackling inflation. But it also likely to trigger an economic slowdown and raises the risk of a recession.

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

Only time will tell if the Fed is right, or on the verge of yet another a major policy error.

Rate Hikes Across The Board and Recession

Next up this week will be The Bank of England is also expected to hike interest rates for the fifth month in a row – by increasing its base rate by half a percentage point to the highest in 13 years.

The global efforts to hike interest rates have heightened the risk of a severe downturn in the United States, Europe and elsewhere. Last week, the World Bank warned of the unavoidable threat of “Stagflation” – slow growth accompanied by high inflation around the world.

Impact on Commodities

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 bullish backdrop for commodity prices. That’s why it’s no surprise that Commodities are outperforming every other asset class out there and are firmly on track for their biggest first half performance on record in over a century.

And this is just the beginning!

Gold Price Forecast Video for June 15, 2022

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

For a look at all of today’s economic events, check out our economic calendar.