Record Commodity Prices Bolster Case for Fed’s Hawkish Tilt

(Bloomberg) -- Commodity prices soared to an all-time high, underscoring the inflation concerns that prompted Federal Reserve Chair Jerome Powell to open the door to faster rate hikes to cool the hottest price rises in almost 40 years.

The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures, climbed to the highest ever level on Wednesday, and has more than doubled from a four-year low reached early in the pandemic in March 2020.

The biggest winners this year include crude oil, natural gas, diesel and gasoline as a European energy crisis, supply constraints and Russia-Ukraine tensions come at a time when demand is recovering and worries about the omicron virus variant ease. Vegetable oils, such as palm and soy, have surged, while aluminum and nickel have also rallied on tightening markets. 

The surging costs of energy and crops have added to pressure on policymakers around the globe to consider interest-rate hikes to cool prices. Food inflation has reached the highest in a decade. Powell made clear the Fed would act as needed to curb inflation, endorsing an interest-rate liftoff in March and paving the way for more frequent and potentially larger hikes than anticipated.

“Commodities are a late cycle hedge,” according to Jeff Currie, the global head of commodities research at Goldman Sachs Group Inc. “They’re the best hedge against rate hikes, inflationary pressures,” he said in an interview with Bloomberg TV on Wednesday, restating that the bank’s base case is for a supercycle that includes the entire commodity complex.

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