Earlier this week, the Fed kept the Federal Funds rate unchanged. This was the first time in many sessions that the Fed opted not to further reduce rates. To us, this signals not only a pause in rate cutting, but a change in monetary policy designed to combat inflation and the pitifully low dollar. It also is a hint that the Fed does not believe that the US can continue to export its way out of the current economic mess. In our view, look for the Fed to gradually hike rates in the coming months even if it has a negative impact on the near-term US economy. When will it happen? We’re not sure, but it will. The time is coming.
But what will this mean for the metals markets? After the most recent decision to keep rates steady, copper rose among other traded metals. I’m calling it here. When the dollar does eventually appreciate once the Fed decides to tackle inflation ” at the expense of the economy, at least in the near-term ” expect prices for metals to come down as domestic demand slackens. But until then, we’ll be able to thank cheap money not only for inflation and an ailing dollar, but metals prices that remain surprisingly high given the so-so US and global economy.