Do commodity prices signal inflation under quantitative easing? Evidence from interest rate co-movements

This paper examines the dynamic relationship between real commodity price changes and interest rate changes during the U.S. Federal Reserve’s quantitative easing (QE) and COVID-19-era policies. Employing wavelet coherency and phase difference analysis over the period from January 2003 to December 2025, we provide a time–frequency characterisation of how these variables co-move under unconventional monetary regimes. We find robust short-term positive correlations between interest rate changes and real price changes across metals, energy, agriculture, and food commodities during both the QE and COVID-19 periods. Precious metals exhibit negative correlations during the subprime crisis, reflecting demand for value preservation. Critically, real price changes in hard-to-store commodities frequently lead interest rate changes, consistent with commodity prices anticipating monetary policy actions. To distinguish inflation-related channels from broader confounders, we implement partial wavelet coherency conditioned on money growth and core inflation. The significant attenuation of correlations under these conditions supports the quantity theory of money and the Fisher effect, indicating that the observed co-movements are substantially linked to inflation expectations. Our findings carry a direct policy implication: when the zero lower bound stifles conventional interest rate channels, commodity prices act as high-frequency barometers of evolving inflation expectations. This necessitates that policymakers treat energy, metals, and food markets as primary leading indicators during episodes of unconventional monetary policy. Complementing this policy insight, we introduce a wavelet-based methodology that significantly advances the literature by exposing the nonlinear, time-varying dynamics that standard econometric approaches systematically suppress.