Commodities are the best hedge against Fed hikes: The MUFG Global Markets Podcast

With four Federal Reserve (Fed) hikes currently priced in for 2022, investors are seeking protection. Commodities are anchored physical assets driven by demand “levels” while financial assets (equities, bonds and credit instruments) are driven by growth “rates”. This distinction matters as Fed hikes slow down the growth rate of demand (which drives anticipatory financial assets) – not demand levels (which drives spot assets like commodities) so long as the level of demand exceeds the level of supply. This creates a scarcity premium in commodity prices.

In this week’s podcast, Ehsan Khoman, Head of Emerging Markets Research (EMEA), discusses why commodities remain the best hedge during periods of rising Fed rate hikes. His examination of each of the nine Fed hiking cycles since 1972 signals that commodities have, on average, outperformed all major cross-asset classes.

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