Fed rate cuts boost commodities.
Investors Chronicle - magazine and web content, March, 2008
STRATEGY: Panicky interest rate cuts are pushing commodity prices higher - meaning lower future returns. Chris Dillow
US interest-rate cuts are driving expected returns on real assets to record lows. The Federal Reserve is expected to slash interest rates yet again next Tuesday - futures markets are pricing in a two-thirds chance of a three-quarter point cut in the Fed funds rate, to 2.25 per cent.
At this level, rates would not only be far below the headline US inflation rate, of 4.3 per cent, but even below the rate excluding food and energy, which is 2.5 per cent. So real interest rates are, in effect, negative.
And markets expect them to remain so for some time. Futures markets expect the Fed funds rate to remain around 2 per cent...
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