Federal Reserve officials' hawkish statements boost the dollar, while copper prices continue to decline

According to Zhitong Finance APP, due to the uncertainty surrounding the Federal Reserve's interest rate cut prospects in December, the prices of base metals are under pressure. Among them, copper prices have further retreated from last week's record highs, with all six major copper futures on the London Metal Exchange (LME) declining. As of the time of writing, the LME three-month copper contract fell by 1.62%, reported at $10,669.00 per ton.

Copper is regarded as a "barometer" of the global economy due to its widespread use in construction, electricity, and manufacturing. Driven by optimistic expectations regarding the outcomes of trade talks between China and the United States, LME copper reached a record high of $11,200 per ton last Wednesday.

Uncertainty on the supply side has been a significant driver of the recent rise in copper prices. Last week, mining giant Glencore (GLNCY.US) lowered its production forecast for 2025, and Anglo American (NGLOD.US) warned that output from a major mine in Chile would fall short of expectations. U.S. mining giant Freeport-McMoRan temporarily halted operations after a landslide at the Grasberg mine in Indonesia on September 8. The company has announced the activation of force majeure clauses and expects its production to be significantly affected, continuing until 2027. Freeport-McMoRan has reduced its 2026 production guidance for the Grasberg mine by 35%, which means a decrease of about 270,000 tons of copper supply.

It is worth mentioning that since 2025, several of the world's largest copper mines have faced challenges. In late May, the world's fourth-largest copper mine, Kamoa-Kakula in the Democratic Republic of Congo, experienced a seismic event, leading to a reduction in its 2025 production guidance from 520,000-580,000 tons to 370,000-420,000 tons. At the end of July, the world's largest underground copper mine, the El Teniente mine in Chile, suffered a mine collapse due to an earthquake. The Chilean state-owned copper company operating the mine stated that this year's production would be reduced by 300,000 tons, approximately 11% lower than previously expected.

However, Tom Price, a senior analyst at Panmure Liberum, stated that he believes the main driving factors behind the recent rise in copper prices—easing global trade tensions and a significant increase in market expectations for Federal Reserve interest rate cuts—have largely been factored into current trading prices. He added, "Therefore, I believe some investors may choose to exit the market due to a lack of new driving factors in the short term, while also returning to the reality that the demand expectations for copper have not changed significantly."

Currently, investors' focus has shifted from supply crises back to the outlook for Federal Reserve policy. The recent hawkish statements from several Federal Reserve officials have strengthened the dollar, making dollar-denominated commodities less attractive. Data shows that the U.S. dollar index (DXY) rose more than 1% in the past week, reaching 99.82 at the time of writing, the highest level since July.

Federal Reserve Chairman Jerome Powell stated after last week's interest rate decision that a rate cut in December is "by no means a done deal." Subsequently, several regional Fed presidents expressed caution regarding excessive rate cuts. Kansas City Fed President Esther George issued a statement opposing a 25 basis point cut at last week's meeting. Dallas Fed President Lorie Logan stated that she preferred to maintain rates steady last week and believes that another rate cut in December is unlikely. Cleveland Fed President Loretta Mester argued that current interest rates are not far from their predicted neutral rate, indicating that she believes there is very limited room for rate cuts.

Chicago Fed President Austan Goolsbee also sent hawkish signals this Monday. He stated that he has not yet decided whether to support a rate cut in December and noted that his threshold for a rate cut is "higher than in the last two meetings." Goolsbee mentioned that inflation has been above target for four and a half years and that the "trend is still not ideal," which makes him cautious about further easing. He acknowledged that the job market has cooled somewhat but still believes that most indicators show labor demand remains stable. He specifically warned that, in the context of a government shutdown, incomplete data, and unclear inflation trends, a premature rate cut could lead to a "policy error of jumping the gun," emphasizing that "rates should decline alongside inflation, not ahead of it."

However, some Fed officials support further rate cuts. San Francisco Fed President Mary Daly stated on Monday that she supports the 25 basis point cut implemented by the Fed last week and believes that "it is appropriate to slightly lower the policy rate further" given that inflation remains above the 2% target while the labor market is cooling. Fed Governor Lisa Cook also indicated that the December meeting remains "a meeting where a rate cut is possible," pointing out that current inflation risks and employment risks are "rising on both sides." In her view, if rates remain too high, the labor market could deteriorate more sharply.

Data shows that the market currently expects a roughly 67% probability of a Fed rate cut in December. However, with missing economic data, unclear inflation trends, and differing speeds of labor market cooling, the policy outlook is becoming increasingly uncertain.