This past week was the worst on record since the pandemic started in 2020 for the metal copper. Unfortunately, this is an inevitable sign that a recession is on the horizon and right around the corner.
Fed crashed copper in 3 months! pic.twitter.com/XkuMzDC9ds
— Jeb Handwerger 🗽🇺🇸⛏ 🐊 (@goldstocktrades) July 15, 2022
Copper is widely known for its use as a significant component in electronics and motors and is often used as a forerunner of economic well-being on the stock market trading floor. This week though, it fell as low as $6,953 a ton on the London Metal Exchange on Friday. The commodity recovered later in the day, with the three-month price rising above $7,170.
Still, copper posted its most significant one-week percentage decline not seen since late March 2020, at the height of the pandemic and the related shutdowns that occurred that shook the economy worldwide. In the past four months, copper has fallen about 35%, which wiped out any gains earned at the rise of the conflict in Europe. The overall year-to-date drop in price for copper right now is at 28%.
Copper officially entered what is called a bear market — which is when a market experiences prolonged price declines. Copper entered the bear market stage at the end of June, an occurrence that has preceded every recession over the past 30 years, which is why it is believed now that a recession is inevitable.
The growing concerns of a recession stem from the outrageously high inflation not seen in over forty years, which can force the Feds to raise the interest rates, even more triggering an unavoidable recession.
In June, the Federal Reserve approved a 75-basis point interest rate increase, which would push the federal fund’s target range to 1.5%-1.75%. They are discussing another increase of this magnitude to possibly take place in July as inflation remains stubbornly high, according to the Fed Chairman, Jerome Powell.
The consumer price index rose 9.1% in June from a year ago, exceeding market expectations. This marks the fastest pace of inflation since December 1981.
Historically, even Democrat presidents changed course when faced with economic challenges. John F. Kennedy lowered taxes, Jimmy Carter deregulated industries from air travel to beer, and even Bill Clinton acquiesced to rein in spending.
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— Heritage Foundation (@Heritage) July 15, 2022
Hiking interest rates tends to hurt the consumer, creating higher rates on consumer goods and business loans. This, in turn, slows down the economy by forcing employers to cut back on their spending. Mortgage rates have already reached a whopping 6%, the highest seen since 2008, right before the housing bubble crash, and some credit card issuers have boosted their rates by as high as 20%.
“Everything is in play,” Atlanta Fed President Raphael Bostic told reporters in Florida on Wednesday. When asked if that included an entire percentage point interest rate hike, Bostic said: “It would mean everything.”
Federal Reserve Chairman Jerome Powell recognizes it will be difficult to avoid a recession but accomplishing this soft landing will depend on accepting a higher inflation target than returning to 2%. Instead, Chairman Powell will likely stall us at 4% when all is said and done, and this might be the best we get for a long time. If Americans are willing to accept 4% as the new benchmark for inflation in this country, then this may be how we avoid moving toward a bonafide recession in 2023. Of course, there are the mid-terms to consider, and for many of us, November cannot come fast enough.