Is Fed Prepared to Support Impacted Commodities Market?

A market breakdown could have extensive economic consequences. The US central bank is believed to be aware of the necessity of being prepared to lend emergency support in the aftermath of the sanctions imposed on Russia, given the fact that the sanctioned country is undoubtedly one of the globe’s largest exporters of several energy products, fuels and metals.

Sactions do create additional problems to already-impacted commodity markets, with potentially dire consequences for the global economy. To avoid unnecessary damage, officials are urged by economists to get prepared to meet this extraordinary challenge with a no less extraordinary response which could take the shape of emergency support from the US Fed.

In recent weeks, uncertainty about how the war and sanctions will affect supply has led prices of everything from oil to nickel to whirl wildly, in some cases more than doubling within a few days.

Volatility has, in turn, prompted lenders and clearinghouses to demand more collateral to back market participants’ rapidly expanding positions, in some cases boosting cash demands tenfold.

Combined with supply-chain snarls, which have increased the volume of commodities in transport, this has placed extreme stress on the finances of some of the world’s largest trading firms, such as Glencore, Trafigura and Vitol; stress that recently forced the London Metal Exchange to shut down nickel trading to avert a cascade of defaults.