The Possible Fallout of a Fed Rate Hike for Freeport-McMoRan
(Continued from Prior Part)
Yellen’s speech to the Economic Club
As we’ve already seen, Freeport-McMoRan (FCX) and other copper producers, including Teck Resources (TCK), Southern Copper (SCCO), and Glencore (GLNCY), fell steeply on December 2, 2015. Fed chair Janet Yellen spoke that day to the Economic Club in Washington, D.C.
Yellen’s speech was regarded as hawkish by market participants. Commodity (DBC) stocks reacted negatively, bracing for a possible federal rate hike at the Fed’s December 15–16, 2015, meeting.
The Federal Reserve has maintained near-zero interest rates for almost six years, as you can see in the graph above. Now let’s look at some key takeaways from Yellen’s speech.
Hawkish stance
In its September meeting, the Fed expressed concern over slowing global growth. However, in Yellen’s speech before the Economic Club, she said that “downside risks from abroad have lessened since late summer.” She added, “Among emerging market economies, recent data support the view that the slowdown in the Chinese economy, which has received considerable attention, will likely continue to be modest and gradual.”
Risks emanating from the Chinese slowdown were possibly one reason the Fed didn’t raise rates in its previous meeting.
Is a rate hike coming?
According to Yellen, “Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals.” Please note that “maximum employment and stable prices” are the Fed’s two stated goals while it determines monetary policy.
Yellen also said that “holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and thus undermine financial stability.”
So what would a possible rate hike mean for the copper industry? We’ll discuss various aspects of this in the coming parts of this series.
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