Fed policy boosts commodities

Federal Reserve Chairman Janet Yellen noted that she will continue to raise interest rates and begin to cut the balance sheet. Under normal circumstances, this policy should lower commodity prices. But this is not happening.

In recent history, the balance sheets of the major four central banks - the United States, China, the European Central Bank, and Japan - have expanded thanks to light monetary policy and quantitative easing in direct response to the 2007-2009 recession. By 2010, the total assets of central banks amounted to 6.5 trillion. US dollars, and the share of the FRS - 2.25 trillion. US dollars. Today those numbers are $ 18 trillion and $ 4.5 trillion, respectively. The stimulus has resulted in a slower economic recovery compared to historical standards as measured by global gross domestic product.

Thus, despite a positive correlation with balance sheets and capital markets and with fixed income, the opposite is true for commodities that did not show signs of life until mid-June 2017. Until then, commodity prices have lagged behind for years, even in late 2016 to 2017, despite President Donald Trump's rhetoric around infrastructure and the border wall. But as it became increasingly likely that the Fed was weeding out stable during rate hikes, and the central bank began signaling its willingness to cut its $ 4.5 trillion balance sheet, commodities began to rebound, largely driven by oil and industrial metals like copper and titanium. ...