Why Fed Policy Is Boosting Commodities

Federal Reserve Chair Janet Yellen has indicated she will continue to raise interest rates and begin to shrink the balance sheet by buying back Treasuries. Under normal circumstances, this policy should pressure commodity prices downward. Yet that’s not happening.

In recent history, the balance sheets of the big four central banks -- the U.S., China, the European Central Bank and Japan -- expanded through easy monetary policy and quantitative easing, as a direct response to the recession of 2007-2009. By 2010, total assets of central banks were $6.5 trillion, with the Fed’s portion at $2.25 trillion. Today, those figures are $18 trillion and $4.5 trillion, respectively. The stimulus resulted in a slower economic recovery compared with historical standards, as measured by global gross domestic product.