Fed Rate Cuts Expected to Boost Commodity Demand: Wells Fargo

Wells Fargo analysts express optimism regarding the Federal Reserve’s recent rate cuts, anticipating a significant boost to commodity markets. They expect this policy shift to enhance global demand in the upcoming months.

Historically, commodities tend to perform well after the initial Fed interest rate cut, especially during non-recessionary periods. Reflecting this trend, Wells Fargo predicts that reduced borrowing costs from these rate cuts will stimulate demand, supporting the current commodity bull market.

The Fed’s decision to lower interest rates by 50 basis points in September marked a crucial moment, being the first cut since the pandemic shock of 2020. The immediate response from commodity markets has been encouraging.

Gold prices soared to record highs of over $2,600 per troy ounce, and the broader Bloomberg Commodity Index increased by 3.4% within a week following the Fed’s announcement. Analysts at Wells Fargo view these price shifts as indicating the start of a longer-term trend, fueled by rising global liquidity and improved borrowing conditions.

They highlight that the absence of a recession in the U.S. adds further support for an increase in commodity demand. Historically, when rate cuts have occurred in a non-recessionary climate, commodity prices have consistently risen over the following 12 to 18 months.

Wells Fargo analysts predict that the current cycle will mirror this pattern, benefiting from the Fed’s proactive rate-cutting strategy that fosters a supportive monetary environment. They also suggest that the combination of lower rates and the Fed’s measured approach will help prevent a sharp economic downturn, which in turn will boost demand across essential commodities such as metals, energy, and agriculture.

Wells Fargo foresees a strong foundation for commodities moving forward, with a focus on global economic recovery. The easing cycle initiated by the Fed is expected to generate a new wave of liquidity, encouraging investment and consumption in both emerging and developed markets.

The analysts maintain a positive outlook for the Bloomberg Commodity Index, predicting it will reach a range of 250 to 270 by 2025.