What’s Next For Commodities As Traders Await Fed’s Annual Jackson Hole Meeting?

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Published: Aug 21, 2023, 16:03 GMT+00:00

There is no deny, that the Fed’s Annual Economic Symposium comes at a pivotal time.

August’s Central Bank Gathering

As we head into the final stretch of August, it’s that time of year again when the world’s most powerful central bankers prepare to gather at the Federal Reserve’s eagerly awaited Annual Economic Symposium in Jackson Hole.

After an era of relentless inflation and worries that the U.S central banks most aggressive interest rate hiking campaign ever seen would end up tanking economies – there are signs that a recession can be avoided, for this year at least.

Improvements in Inflation Trends but Risks Remain

A recent string of data shows that America’s inflation problem is definitively getting better. That’s good news for Jerome Powell and his colleagues at the Federal Reserve.

But it’s dangerous to declare victory just yet.

Minutes from the FOMC’s July Monetary Policy Meeting, revealed that most Fed officials continue to see “significant upside risks to inflation”.

Broader economic shifts are driving speculation that inflation is going to be sticky and may remain stubbornly above the Fed’s 2% target, for much longer than initially anticipated.

Some of these factors include: demographics that may push up wages as aging workers retire, a shift away from globalization as BRICS nations make advance progress in creating their own ‘new world order’, the disruptive effects of climate change on agriculture and the global initiative to combat global warming by shifting away from fossil fuels.

Among other concerns, is the recent surge in Commodity prices – specifically Energy and Agriculture.

According to economists, the uptick in Energy and Agriculture prices could further fan the inflationary fire after a summer of respite. In other words, a “second wave” of inflation, is likely on the way!

In an ideal world, to get inflation down to the Fed’s desired 2% target – Oil prices would need to fall below $60 a barrel and stay there. Unfortunately, with Saudi Arabia’s aggressive policy aimed at keeping Oil prices high – $80 a barrel appears to be the new floor for the market.

Climate-Driven Commodity Price Surges and Inflation Concerns

Meanwhile, the disruptive impacts of Global Warming and Climate Change have sent Agricultural Commodities from Orange Juice, Coffee, Sugar, Corn, Wheat, Cocoa, Soybean and Rice prices skyrocketing to all-time record highs.

As traders know, there is a strong correlation between Commodities and Inflation. When Commodity prices accelerate at a red-hot pace, so does Inflation.

Given the significant risk of an uptick in inflation this year – the big question now is will the Fed skip, pause or hike interest rates again in September?

The answer to that question may come from Fed Chairman Jerome Powell’s highly anticipated speech at the Jackson Hole Economic Symposium. Ultimately, positioning this meeting as one of the biggest market-moving events of 2023, which traders will not want to miss out on!