Free Trial

MNI BRIEF: Dallas Fed Warns Of Commodities Feedback Loop

Sudden jumps in commodities prices can create a feedback loop that causes prices to rise further due to higher offshore dollar funding costs, a Dallas Fed blog published Thursday warned, but said the bar for central bank intervention is high.

Since Russia invaded Ukraine, prices of energy, foods and metals have experienced some of the largest increases since the 1970s and policymakers need to monitor the potential impact on financial conditions, analysts from the Dallas Fed's banking supervision department wrote.

"Recent evidence of risk management weaknesses at the London Metals Exchange -- the lack of monitoring of large positions, suspension of trading and the reported strains on multiple clearing members in nickel trading -- is a concern," they said. "That said, the threshold for central bank intervention in unregulated markets is high; it would be prudent for firms active in commodities markets to proactively assess and further strengthen their liquidity profiles."

MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.