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Wednesday’s Federal Open March Committee (FOMC) meeting featured a 25-basis-point rate hike, which was widely expected. However, the post-meeting statement removed previous language that had anticipated additional firming of their monetary policy. This was seen as a signal that that the Fed would “pause” its rate hikes starting at the June meeting. This could hold benchmark interest rates at current levels or even allow them to move lower over later this year.
Source: Bureau of Economic Advisors
Although there are several factors in play, including the flare-up in US regional bank concerns and the threat of a US government debt default, the Fed is expected to keep its eye on employment and inflation. Friday’s April unemployment reading of 3.4% matched a 59 ½-year low, indicating a strong jobs market. However, there has also been a notable decline in year-over-year inflation readings since mid-2022, particularly core Personal Consumption Expenditures and the Consumer Price Index.
One area that could receive a boost from a paused Fed would be US vehicle sales. Last month, US light vehicle sales came in at a 15.914 million annualized rate. This was just behind January’s 15.951 million reading and was the second highest since May 2021. Vehicle inventories have been on the rise, with March’s 126,200 reading the highest since August 2021. Stronger vehicle sales should provide support to palladium, platinum, copper, and the energy markets.
Another industry pressured by rising US rates has been housing, with potential home buyers reluctant to get mortgages with interest rates running much than they were a year prior. If the Fed stays on hold, this could encourage homebuilders to undertake new projects, which would provide a demand boost for copper and lumber.
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Originally Published May 5, 2023
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