As copper prices decline, another recessionary warning is flashed.

A possible recession may be on the horizon as copper saw its greatest weekly decline since the early stages of the COVID-19 outbreak.
On Friday, the metal, a key component in electronics and motors and frequently considered as a leading indicator of the health of the economy, dropped as low as $6,953 per tonne on the London Metal Exchange. As a result of a larger market upswing, the commodity rebounded later in the day, with the three-month price jumping above $7,170.

Nevertheless, copper had its worst weekly percentage decrease since late March 2020, when the economy was experiencing its worst pandemic-related shutdowns. Over the past four months, the metal’s price has dropped by nearly 35%, wiping away gains made following the Russian invasion of Ukraine. Copper has decreased by around 28% so far this year.

At the end of June, copper formally entered a bear market, a condition that, over the last 30 years, has always been followed by a recession.
The fall coincides with mounting worries that unchecked inflation may drive the Federal Reserve to raise interest rates to the point where a recession is sparked.

The federal fund’s target range was increased by 75 basis points to 1.5 percent to 1.75 percent by Fed officials’ approval in June. This was the first rate increase since 1994. Chairman Jerome Powell told reporters following the meeting that another increase of that size is likely in July despite indications of persistently strong inflation, which has caused investors to reevaluate the outlook for the economy.

Following the scorching-hot Labor Department data issued on Wednesday, which revealed the consumer price index increased 9.1 percent in June from a year earlier, above market estimates, investors raised their hopes of an even higher, 100-basis point rate rise. The rate of inflation is at its highest level since December 1981. According to the CME Group’s FedWatch tool, Wall Street is now factoring in a 30% likelihood of a mega-sized rate rise at the Fed’s meeting on July 26–27.
By compelling businesses to reduce spending, rising interest rates tend to result in higher rates on consumer and commercial loans, which slows the economy. While some credit card companies have increased their rates to 20%, mortgage rates are now reaching 6%, the highest level since 2008.

Following the most recent inflation figures on Wednesday, Raphael Bostic, president of the Atlanta Fed, told reporters in St. Petersburg, Florida, “Everything is in play.” When asked if it meant a full percentage point increase in interest rates, Bostic responded, “It would mean everything.”