Inflation drives the commodity market. Divided Opinions at the Fed

We are slowly entering the last month of the second quarter and the global banking crisis, the credit crunch, higher than expected inflation and the rapidly increasing risk of recession are emerging as the top four macro drivers of commodity markets.

Divided Sentences at the Federal Reserve

Last week, the minutes from the May meeting confirmed that the stubbornness of high inflation is divisive Federal Reserve on how to manage interest rates in the coming months, making the Fed's policy outlook more hazy than ever since it started raising interest rates in March 2022.

While prices are stabilising, inflation remains well above the Fed's 2% target - and this is leaving Fed officials increasingly divided on their next move.

Since the collapse of several top banks in the US and Europe, investors expect the Federal Reserve to cut interest rates by the end of the year. However, these hopes were stifled by the minutes of the May meeting FOMC, showing that it is unlikely to happen soon.

The minutes revealed that many top Fed officials supported the need to continue raising interest rates as "insurance" against inflation. However, there is a problem! It seems that the current economic and financial market conditions do not allow for further interest rate increases.

After 10 consecutive hikes - the Federal Reserve raised interest rates to 5,25% - the highest level since 2007.

The further into restrictive territory we get, the more likely it is that we'll start to see black swans - as we've seen recently with the second, third and fourth biggest bank collapses in history, all of which took place in the last two months.

These increases also more than doubled mortgage rates. Credit card debt has surpassed $1 trillion for the first time in history. The number of bankruptcy filings is the highest since 2008. While overpriced assets like real estate and stocks start to waver.

One step too far...

Most economists have long believed that the Fed went one rate hike too far. Now that the odds are growing for another rate hike next month, the biggest risk is that the Fed may overdo it.

In times like these, finding a safe place to keep your money becomes especially important, which would explain why commodities have once again become everyone's favorite investment vehicle!

Attractive goods like never before?

According to a report published by International Monetary Fund - gold has become the world's number one asset class for those seeking protection, diversification and high returns in the current economic climate.

The second most popular asset, as revealed in the report, was silver. It is closely followed by agriculture, which ranks third.

No matter how you look at it, one thing is clear. The case for commodities in a well-diversified portfolio has never been clearer than it is now.