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Will A Fed Policy Mistake Lead To Higher Commodity Prices In 2022?
By: Phil Carr | May 13, 2022

• Recent moves by the Federal Reserve have stoked fears of a major policy mistake that could alternately lead to a slowdown in economic growth combined with unstoppable inflation.

Federal Reserve Rate Hike and Recession

This month, the Federal Reserve wrapped up its highly anticipated May meeting with a 50-basis point increase – the biggest and most aggressive interest rate hike in 22 years in what can only be described as a “belated response” to the fastest rise in inflation seen in over 41-years.

The Federal Reserve, which finds itself caught between a rock and a hard place, got even more bad news on Wednesday: Inflation is still rapidly accelerating in many places with April’s CPI data showing the biggest core increase since 1982.

11 of the last 14 Fed tightening cycles since World War II have been followed by a recession within the next 12 months.

Will the Fed Get it Right This Time?

Only time will tell, however one thing we do know for certain is that Equity markets tend to get crushed once the Fed begins raising rates.

The S&P 500 is now down nearly 22% year to date, and the Nasdaq is faring even worse, plummeting over 29% this year. This inversely presents huge bullish tailwinds for the entire commodities sector ranging from the metals, energies to soft commodities – as they are viewed as one of the most reliable hedges against economic risk, inflation and recession.

Commodity Prices Forecast

After tallying up astronomical double to triple digit gains within the first quarter of 2022 – commodity prices are likely to undergo a much-needed and healthy correction in the short-term as trader’s book profits. Overall, it goes without saying that the fundamental backdrop for entire Commodities sector remains extremely bullish in the long-term.

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