Federal Reserve foresees a potential rate hike as soon as next year, earlier than expected
By CHRISTOPHER RUGABER, AP Economics Writer
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Updated:
AP Photo/Susan Walsh, File
The strengthening U.S. economy is edging closer to achieving the Federal Reserve's goals for job growth and inflation, Chair Jerome Powell said in a speech.
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Prices for nearly every natural commodity have grown over the past year, largely due to the coronavirus pandemic's effect on the economy. Sugar costs grew by 54%, soybeans by 83%, and corn by more than 100%. Commodity prices rise and fall along with supply and demand. The past year stirred up a perfect storm with the shutdown of the economy, supply chain issues and manufacturing plant closures all occurring at the same time. Now that the economy appears to be reemerging, will there be a settling of commodity prices, or will they continue to gain steam and grow?
Stacker researched the highest prices on record for every major commodity, analyzing the Federal Reserve's Economic Data database, or FRED. Data was available from 1990 to 2021, with some commodities having data as far back as 1968. The most recent available price, as of April 2021, is also listed. If a commodity had two or more different measures, the more popular one, according to the Federal Reserve, was used.
While most commodities have not returned to their historic peaks, those who stand to gain—or lose—from the rising prices, are keeping a close eye on what’s to come.
- Highest price: $3,067.46 per Metric Ton (July 2008)
- Price as of April 2021: $2,190.48 per Metric Ton
Today, aluminum is used in everything from soda cans to spaceships. However, when it was first discovered in the early 1800s by extracting it from ore, lightweight aluminum was more expensive—and coveted—than gold and silver.
Sanit Fuangnakhon // Shutterstock
- Highest price: $260.63 per Metric Ton (Aug. 2012)
- Price as of April 2021: $138.98 per Metric Ton
Barley is one of the biggest feed grain crops next to corn and sorghum. Barley is also grown for malt production and human consumption. Because barley is a feed crop, the price usually aligns with wheat and corn. However, as more consumers tout the health benefits of barley, demand and prices may rise.
Davidchuk Alexey // Shutterstock
- Highest price: 272.30 Cents per Pound (Sept. 2014)
- Price as of April 2021: 224.82 Cents per Pound
A variety of factors can affect the price of beef. If the price of chicken goes up, consumers may buy more beef; if there’s a recall, sales of beef may plummet. Weather, disease, or higher feed prices are additional factors that can result in higher beef prices overall.
Patty Chan // Shutterstock
- Highest price: $195.19 per Metric Ton (July 2008)
- Price as of April 2021: $95.23 per Metric Ton
Despite a growing number of environmental groups calling for the phasing out of coal-powered factories in order to slow climate change, coal plants are still being built. Proponents of coal point out that it is a reliable, affordable, and long-lasting energy source that is readily available everywhere in the world.
Kotomiti Okuma // Shutterstock
- Highest price: $9,880.94 per Metric Ton (Feb. 2011)
- Price as of April 2021: $8,988.25 per Metric Ton
Copper is a versatile material used in products such as water pipes, cookware, and electrical wiring. At one time, it was thought we may run out of copper. However, experts believe that the copper reserves found in the Earth’s crust, combined with copper recycling efforts, result in at least 200 years of copper reserves.
- Highest price: $333.00 per Metric Ton (July 2012)
- Price as of April 2021: $245.76 per Metric Ton
Corn prices have skyrocketed over the past year. The U.S. is the top producer of corn in the world, with two-thirds of the corn going to feed livestock, not humans. Corn is also used to make ethanol, an ingredient in automobile gasoline. High fructose corn syrup, cereal, corn starch, and many other products are also made with corn. The demand for ethanol has a big effect on corn prices, so if consumers are purchasing less gas, corn prices could go down.
Zoia Kostina // Shutterstock
- Highest price: 229.67 Cents per Pound (March 2011)
- Price as of April 2021: 91.45 Cents per Pound
The U.S. is the third-largestproducerof cotton, behind China and India. Paper currency in the U.S. is composed of 75% cotton. When the price of competing materials such as polyester are less expensive, cotton is less in demand and prices go down.
Pix One // Shutterstock
- Highest price: $133.88 per Barrel (June 2008)
- Price as of April 2021: $61.72 per Barrel
Crude oil prices are largely dependent on supply and demand. When prices go up, it means there’s more demand for petroleum products. When prices fall, it means there’s an overabundance of supply on hand. Seasonal changes, such as hurricanes and freezing, which can affect how long it takes to transport crude oil, have also resulted in temporary price hikes.
Misunseo // Shutterstock
- Highest price: $1,971.17 per Troy Ounce (Aug. 2020)
- Price as of April 2021: $1,758.80 per Troy Ounce
In times of economic downturns, gold is seen as a safe investment. Over the past year, there has been less gold mining, creating less supply and more demand of the precious commodity. International prices and exchange rates for gold further cause a spike in gold prices—particularly in countries such as India, the world’s second-largest gold consumer.
YANG YIDONG // Shutterstock
- Highest price: $187.18 per Metric Ton (Feb. 2011)
- Price as of April 2021: $166.74 per Metric Ton
The demand for iron ore continues to increase as China grows its crude steel production. Iron ore is a rock that steel is extracted from. The process of extracting the steel is said to cause pollution, but production runs are reaching an all time high, regardless.
- Highest price: $13.42 per Million BTU (Oct. 2005)
- Price as of April 2021: $2.66 per Million BTU
Prices for natural gas increase or decrease depending on factors such as hot or cold weather that require air conditioning or heaters. The U.S. produces the majority of its own natural gas and has ramped production since 2005, helping prices to stay low.
RHJPhtotoandilustration // Shutterstock
- Highest price: $51,783.33 per Metric Ton (May 2007)
- Price as of April 2021: $16,406.66 per Metric Ton
Nickel is derived from both mining ore and recycling. The resulting metal is used in hundreds of thousands of everyday products. One of the biggest indicators that determine nickel price increases is demand from China. The country depends on nickel for everything from batteries to stainless steel products, regularly requiring more than half of the global nickel supply.
masa44 // Shutterstock
- Highest price: $6,241.91 per Metric Ton (Dec. 1996)
- Price as of April 2021: $3,933.92 per Metric Ton
Olive oil consumption continues to rise along with prices. A less-than-stellar growing season in several olive producing countries has created a slightly lower supply of olive oil; and an agreement in March of 2021 between the U.S. and Europe to enact a four-month-long freeze on tariffs resulted in higher demand.
Tatiana Volgutova // Shutterstock
- Highest price: 159.95 Cents per Pound (June 2018)
- Price as of April 2021: 113.40 Cents per Pound
An unexpected winter storm in Texas coupled with the increasing popularity of chicken sandwiches and chicken wings caused a spike in poultry prices. While experts stop short of calling it a chicken shortage, the supply has been strained. Prices will decrease, and supply will increase, in the coming months.
prasit jamkajornkiat // Shutterstock
- Highest price: $1,015.21 per Metric Ton (April 2008)
- Price as of April 2021: $502.35 per Metric Ton
India, currently experiencing lockdowns due to COVID-19, is the largest exporter of rice. Less production may translate to higher prices for this popular commodity. Rice has already experienced an average price inflation of more than 2% each year since 1997, according to the U.S. Bureau of Labor Statistics.
The automotive and healthcare industries are steadily pushing the price of rubber higher as demand increases for gloves, tape, tires, and more. Rubber shortages are also occurring due to a stockpiling of the commodity in China and a need for new rubber sources. The natural rubber used today is found inside plants, most of which are located in Asia.
Aedka Studio // Shutterstock
- Highest price: $615.85 per Metric Ton (Q3 2012)
- Price as of April 2021: $510.67 per Metric Ton
Soybean prices are the highest they’ve been since 2012, according to MarketWatch. Many forecasters believe that the commodity, which is mostly used for animal feed, will be in short supply through 2022, with excess availability running thin.
margouillat photo // Shutterstock
- Highest price: 29.73 Cents per Pound (Jan. 2011)
- Price as of April 2021: 15.81 Cents per Pound
Sugar is a commodity found in a wide variety of foods. Not only can the price of sugar be affected by weather conditions such as drought and flood, but gas demand can also play a role. In Brazil, the ethanol used to power vehicles in the country is created using sugarcane. As gas demand increases, so does the demand for sugarcane, making prices for both rise together.
5 second Studio // Shutterstock
- Highest price: $403.81 per Metric Ton (March 2008)
- Price as of April 2021: $229.89 per Metric Ton
Commercial wheat sales have been down, according to experts, who also note continuing drought conditions in much of the wheat growing regions. China is currently the largest producer of wheat, with America coming in fourth.
APIWAT KAMKAEW // Shutterstock
- Highest price: $4,381.44 per Metric Ton (March 2006)
- Price as of April 2021: $2,791.94 per Metric Ton
Zinc prices are inching to their highest level since 2008, according to experts who point to a power shortage in China as the culprit. Manufacturers depend on zinc to create parts for automobiles, hardware, and electrical devices to help prevent rust.
WASHINGTON (AP) — The Federal Reserve signaled Wednesday that it may start raising its benchmark interest rate sometime next year, earlier than it envisioned three months ago and a sign that it’s concerned that high inflation pressures may persist.
In a statement, the Fed also said it will likely begin slowing the pace of its monthly bond purchases “soon” if the economy keeps improving. The bond purchases have been intended to lower longer-term loan rates to encourage borrowing and spending.
Taken together, the Fed’s plans reflect its belief that the economy has recovered sufficiently from the pandemic recession for it to soon begin dialing back the extraordinary support it provided after the coronavirus paralyzed the economy 18 months ago. As the economy has steadily strengthened, inflation has also accelerated to a three-decade high, heightening the pressure on the Fed to pull back.
The economy has recovered faster than many economists had expected, though growth has slowed recently as COVID-19 cases have spiked and labor and supply shortages have hampered manufacturing, construction and some other sectors. The U.S. economy has returned to its pre-pandemic size and is thought to be growing at a solid 4% annual rate in the current July-September quarter.
At the same time, inflation has surged as resurgent consumer spending and disrupted supply chains have combined to create shortages of semiconductors, cars, furniture and electronics. Consumer prices, according to the Fed’s preferred measure, rose 3.6% in July from a year ago — the sharpest such increase since 1991.
In its updated quarterly projections, Fed officials now expect to raise their key short term rate once in 2022, three times in 2023 — one more than they had projected in June — and three times in 2024. That benchmark rate, which influences many consumer and business loans, has been pinned near zero since March 2020, when the pandemic erupted.
Before it starts raising rates, though, the Fed expects to begin paring, or tapering, its monthly bond buying. The central bank had signaled last year that it would likely start tapering its $120 billion-a-month in purchases of Treasurys and mortgage bonds once the economy had made “substantial further progress” toward the Fed’s goals of maximum employment and 2% average annual inflation.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed said in a statement issued after its two-day meeting ended Wednesday.
Taken together, the Fed’s pullback in bond purchases and its eventual rate hikes, whenever they happen, will mean that some borrowers will have to pay more for mortgages, credit cards and business loans.
Most economists expect the central bank to formally announce at its next meeting in November that it will start reducing its bond buying in December. The Fed hasn’t hinted at how fast it will taper the purchases. But it is widely expected to pare its purchases of Treasurys by $10 billion a month and mortgage-backed securities by $5 billion.
The tricky task for the Powell Fed is to explain how it will soon begin withdrawing its economic support while still reassuring investors, consumers and business leaders that it won’t move so fast as to derail the recovery from the recession. Powell has repeatedly expressed his belief that the current high level of inflation will fade as the economy normalizes — and in part for that reason, has said the central bank isn’t yet close to raising interest rates.
But the changes in the Fed’s interest rate projections suggest that the central bank is moving gradually closer to doing so. In March, the 18 officials who make up its policymaking committee predicted that they wouldn’t raise rates at all until after 2023. In June, the committee revised its forecast to two rate hikes in 2023. And now it sees a rate hike as soon as next year.
In its latest forecasts, the policymakers also indicate that they expect the economy to grow more slowly this year, at 5.9%, down from its June projection of 7%. It sees inflation at 4.2% by the end of this year, but raised its projection for inflation next year to just 2.2%, from 2.1%.
Powell is also grappling with a major ethics issue surrounding the investments and trading of some Fed regional bank presidents. Robert Kaplan, president of the Federal Reserve Bank of Dallas, revealed in financial disclosures that he traded millions of dollars’ worth of such individual stocks as Amazon, Chevron, Facebook and Google in 2020, while the Fed was taking extraordinary measures to boost the economy.
Eric Rosengren, president of the Boston Fed, invested last year in real estate investment trusts that held mortgage-backed bonds of the type the Fed is buying as part of its efforts to lower borrowing rates. And Powell himself owns municipal bonds, which the Fed bought last year for the first time to shore up that market.
A spokesman said last week that the Fed is taking “a fresh and comprehensive look” at its rules surrounding its officials’ financial holdings. The investments were permitted under the Fed’s current rules, and Rosengren and Kaplan have pledged to sell their holdings and reinvest the proceeds into index funds and cash.
The Fed’s expected policy changes follow similar steps by other central banks in the developed world as growth and inflation have picked up in many countries. The European Central Bank said earlier this month that it would reduce its bond purchases, though it has yet to say that it will fully end them. The central banks of Canada and Australia have also scaled back bond purchases.
