Prospects for commodities from Fed tightening

The gains in commodity prices after yesterday's dovish statement could soon be more than reversed if the Fed presses ahead and raises rates earlier than the markets now expect, especially if the dollar climbs further. 

Nonetheless, US monetary policy is unlikely to be tightened sufficiently to counteract other, more positive factors for commodities over the year as a whole. 

Views from Capital Economics ....

• We continue to expect the Fed to raise rates more aggressively than the markets (and even officials themselves) anticipate. This means there is plenty of scope for near-term volatility, but over longer horizons, the latter is surely more important for commodity demand.
  
  
• US interest rates are unlikely to rise sufficiently to derail the economic recovery, which should remain strong. Indeed, the ongoing improvement in economic and financial conditions which justifies lifting interest rates from what are, after all, emergency lows, should still be a net positive for most commodities.