Weekly commodity wrap-up

Take me home, Consumer Price Index

The May Consumer Price Index numbers were released on Wednesday and monthly CPI was unchanged month on month and up 3.3% during the past 12 months. That is the lowest monthly inflation number in two years. It also marks exactly one year of stable yearly inflation that has stayed between 3% and 4%.

It’s still not the desired 2% rate that historical norms and the Fed are shooting for. The debate over cutting interest rates this year and whether it should be one or three seem to be talking points that are just being repeated to have something to talk about.

The effective interest rate set by the Fed is 5.33% and hasn’t moved since August 2023. The last time the Federal Funds Effective Rate was unchanged above 5% for this long was July 2006 to July 2007. In August 2007 the Fed started cutting rates and didn’t stop until taking them to near zero by December 2008.

As interest rates were being lowered, quantitative easing was also engaged with massive bailouts for banks as the mortgage crisis hit. The recession from the mortgage crisis was out of the Fed’s control, and would not have been changed by two or three rate cuts that were three or four months earlier.

The same could be true this time around should a recession be waiting for us in the near or distant future. The die was cast with the extraordinary events and actions taking between 2020 and 2022.

The timing of rate cuts will not be the economy’s saving grace should it come under fire. Until the unemployment rate goes above 5% (currently at 4%) or the annual inflation rate gets to 2.5% cutting rates seems irresponsible.

Talking heads can second guess all they want if we drop into a recession, but inflation is still public enemy No. 1 for the Fed. If inflation is not under control and allowed to return the worse the eventual recession will probably be.

Have a comment or question? Please reach out to derrick.hermesch@pinionglobal.com or call at 785-338-9605

Information contained herein is believed to be reliable but cannot be guaranteed as to its accuracy or completeness. Past performance is no guarantee of future results or profitability. Futures and options trading involve substantial risk of loss and is not suitable for all investors. All information, including this specific material, used and distributed by Paragon Investments LLC (PI) shall be construed as a solicitation for entering into a derivatives transaction. PI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.