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Monetary Policy and Commodity Futures

With daily measures of the real interest rate and expected inflation from commodity futures prices and the term structure of Treasury yields, the authors find commodity futures markets respond to surprise increases in the federal funds rate target by raising the inflation rate expected over the next 3 to 9 months (though no evidence is found that the real interest rate responds to surprises in the federal funds target). Yet, the basket of commodities traded daily is narrow and it is not known whether these observable rates are closely connected to the unobservable inflation and real rates that affect economywide consumption and investment.