Prices may stutter if the economic revival loses steam

The Fed’s move to a “flexible form of average inflation targeting” announced at this week’s Jackson Hole is broadly positive for commodities prices. It points to ultra-loose US monetary policy for longer, which is likely to act as a drag on the value of the US dollar. That said, the Fed is now close to the limit of stimulus it can provide given that it has all but ruled out negative interest rates and yields are already incredibly low across the curve. Commodity prices mostly rose this week in part owing to the Fed announcement, but there was also some relief that the US and China pledged to continue with the trade deal, despite the confrontational rhetoric of recent weeks. Next week, attention may turn to signs that the economic revival is losing momentum in many parts of the world, but notably Europe, which could act as a lid on prices. Meanwhile, we expect that China’s August PMIs (scheduled for release on Monday/Tuesday) will be broadly flat on the month.