Fed Policy Error Sends Commodity Prices Skyrocketing – What’s Next?

Volcker vs Powell Monetary Policies

Unfortunately, it would seem that this adage is all too applicable to today’s Federal Reserve.

Historically, the Federal Reserve has never been right on monetary policy and has a proven track record of getting it ‘wrong’ on inflation, time and time again!

When the Fed’s policy-setting committee announced its first reprieve in an aggressive 15- month-long campaign of interest rate hikes on Wednesday, there was a sting in the tail.

As widely expected, the U.S central bank held its benchmark rate steady after 10 consecutive interest rate increases. But it also signalled it would need to squeeze the world’s largest economy much more before the year is out in order to get a handle on stubbornly high inflation.

Rather than raising rates just once more by a quarter basis point, as had been widely anticipated, most Fed officials are now forecasting there will have to be multiple further increases this year – bring back memories of the serious policy errors made by the Paul Volcker Fed in the 1970s.

A premature pause in the fight against inflation back in the 1970s – led to a prolonged period of high inflation that required even tighter monetary policy, which eventually resulted in the most severe global recession since World War 2.

As proven through history, the more times central bankers pause rate hikes, the longer the problem is going to go on. Inflation becomes more embedded and less sensitive to rate hikes – ultimately making it harder to tame.

There are many parallels between the current situation of Jerome Powell’s Fed and what happened back in the Volcker era. As unbelievable as it seems, the mistakes that the Volcker Fed made in the 1970s are once again being repeated in 2023.

A Bullish Scenario for Commodities

There’s no denying that we are now in an environment, where there can only be three possible outcomes from here on; persistently stubborn inflation, stagflation, or a recession. Each and every one of these scenarios presents an extremely bullish backdrop for Commodities.

In fact, if you want to know what the markets think about the Fed’s latest policy error – then you only have to take a look at Commodity prices.

The Fed’s policy decision sent a total of 27 Commodities including; Aluminium, Copper, Palladium, Platinum, Gold, Silver, Nickel, Zinc, Crude Oil to Natural Gas prices skyrocketed to multi-month highs on Thursday – with many notching up spectacular double digit gains – literally in a matter of hours!

But the real star performer was European Natural Gas prices. The European benchmark surged over 50% on Thursday – racking up a phenomenal gain of more than 95%, in the last week alone.

Extraordinary times create extraordinary opportunities and right now, as traders we are amidst one of the greatest eras of wealth creation the world has seen. When you consider the full magnitude of events that are currently unfolding, it comes as no surprise to see why Commodities are everyone’s favourite trade once again!

Commodity Price Forecast

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