Market Intelligence Analysis - Fed Pivot: A new monetary policy cycle in the US
The June 14th Fed monetary policy meeting is set to be one of the most important in recent times. It will likely mark the end of the fastest monetary tightening in more than 45 years in the US, after 10 consecutive rate hikes. Check below how this will affect commodity markets.
The June 14th Fed monetary policy meeting is set to be one of the most important in recent times. It will likely mark the end of the fastest monetary tightening in more than 45 years in the US, after 10 consecutive hikes, the Fed is set for a pause in the next FOMC meeting. This lays the path for a change in the direction of the Fed’s monetary policy. As inflation cools down and the probability of a recession increase, the Fed has more room to start cutting rates this year. Markets are now pricing a 40% chance of rate cuts to start in November.
From a monetary and price standpoint, we could say we are entering a positive scenario for commodities. As interest rates go down, investors and speculators usually move to riskier assets – like commodities. And compared to stocks, commodities are cheap in a historical perspective. But a recession is on the horizon, punishing cyclical commodities. Most agricultural and energy commodities have a cyclical component in their demand side – which means that the recessionary outlook weighs on their price. On the other hand, we have the perfect scenario for precious metals – especially gold – that are seen as safer assets in moments of greater risk-averseness and economic contraction.
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