Investing.com – Wells Fargo analysts are optimistic that the Federal Reserve’s recent rate cuts will provide a much-needed boost to commodity markets, and anticipate this policy change will boost global demand in the coming years. months.
Commodities have historically performed well after the Federal Reserve’s first interest rate cut, particularly in non-recessionary periods.
In line with this historical trend, Wells Fargo expects that lower borrowing costs resulting from these rate reductions will stimulate demand, contributing to the current commodity bull market.
The Federal Reserve’s decision to cut interest rates by 50 basis points in September marked a pivotal moment, as it was the first cut since the pandemic crisis of 2020. The immediate response from commodity markets has been promising.
Gold prices rose to record highs of more than $2,600 per troy ounce, while the broader Bloomberg commodities index rose 3.4% a week after the Federal Reserve’s announcement.
Wells Fargo analysts believe these price movements signal the beginning of a longer-term trend, driven by a combination of increases in global liquidity and improved borrowing conditions.
Wells Fargo analysts emphasize that the absence of a recession in the United States further strengthens the case for an increase in demand for raw materials.
Historically, when rate cuts have occurred in a non-recessionary environment, commodity prices have risen steadily over the following 12 to 18 months.
Analysts predict that the current cycle will follow this pattern, with the added benefit that the Federal Reserve’s aggressive rate-cutting approach will provide a conducive monetary environment.
Additionally, they argue that the combination of lower rates and the Fed’s dovish approach will prevent a sharp economic slowdown, further boosting demand for key commodities such as metals, energy and agriculture.
Wells Fargo expects this favorable commodity environment to solidify, with a continued focus on the global economic recovery. The easing cycle initiated by the Federal Reserve is likely to create a new wave of liquidity, stimulating investment and consumption in both emerging and developed markets.
Analysts maintain a positive outlook on the Bloomberg Commodity Index, aiming to reach a range of 250 to 270 by 2025.