copper cable

Copper prices fall, triggering another recession warning

Copper suffered its worst weekly fall since the early days of the COVID-19 pandemic, flashing the latest warning sign that a recession could be on the horizon.

The metal – a major component of electronics and engines that is often used as an indicator of economic well-being – fell to $6,953 a tonne on the London Metal Exchange on Friday. The commodity rallied later in the day as part of a broader market rally, with the three-month price rising above $7,170.

Still, copper posted its biggest one-week percentage decline since late March 2020, at the height of the pandemic-related shutdowns in the economy. The metal has fallen around 35% in the past four months, wiping out gains made following Russia’s war in Ukraine. Year-to-date, copper is down about 28%.

Copper officially entered a bear market at the end of June – an event that has preceded every recession for the past 30 years.

INFLATION TIMELINE: MAPPING THE BIDEN ADMINISTRATION’S RESPONSE TO RAPID PRICE GROWTH

copper cable

An employee monitors the 8 mm diameter copper cable which is coiled before passing through a rolling mill to become a cable at the Nexans factory in Lens, northern France, on May 11, 2022. ((Photo by DENIS CHARLET/AFP via Getty Images) / Getty Images)

The drop comes amid growing fears that runaway inflation could force the Federal Reserve to raise interest rates to the point of triggering a recession.

Fed policymakers in June approved a 75 basis point interest rate hike – the first since 1994 – bringing the federal funds target range to 1.5%-1.75%. Another hike of this magnitude is on the table in July amid signs of stubbornly high inflation, Chairman Jerome Powell told reporters after the meeting, prompting investors to reassess the economic outlook.

Investors raised their expectations for an even bigger 100 basis point rate hike following Wednesday’s scorching Labor Department report, which showed that the consumer price index increased by 9.1% in June compared to a year ago, exceeding market expectations. This is the fastest pace of inflation since December 1981. According to the CME Group’s FedWatch tool, Wall Street now forecasts a 30% chance of a mega rate hike at the 26-day Fed meeting. and July 27.

Federal Reserve

A man wearing a mask walks past the US Federal Reserve Building in Washington, DC on April 29, 2020. ((Xinhua/Liu Jie via Getty Images) / Getty Images)

Rising interest rates tend to create higher rates on consumer and business loans, which slows down the economy by forcing employers to cut spending. Mortgage rates are already approaching 6%, the highest since 2008, while some credit card issuers have raised rates to 20%.

“It’s all on the line,” Atlanta Fed President Raphael Bostic told reporters in St. Petersburg, Fla., on Wednesday after the latest inflation data. When asked if that included a full interest rate hike, Bostic replied, “That would mean everything.”

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