The Fed Is Keeping an Eye on Ukraine

The Fed’s interest rate decision has been made a little more complicated due to Russia’s invasion of Ukraine.

Until recently, Fed officials were indicating that the economy needed a 0.5% bump to help manage inflation. At its March meeting, the Fed appears set to raise interest rates by 0.25%. It will be interesting to see what happens.

Energy prices began rising when Russia started assembling forces at the Ukraine border and have continued since. As these prices continue to rise, consumer discretionary spending trends lower as businesses take on higher costs. (Keep in mind, consumer spending accounts for a large chunk of our overall economy.)

Factors such as higher energy prices, higher commodity prices, and the prospect of slower economic growth due to lower spending are putting the Fed in a bit of a pickle; the inflationary impact of these factors could be considerable.

Fed Chair Jerome Powell confirmed that he still sees interest rate hikes ahead when he testified before Congress. He acknowledges, however, that geopolitical events have interjected uncertainty into the Fed’s outlook.