The Russian invasion of Ukraine has made the Fed’s interest rate decision a little more complicated.
The Fed appears set to raise interest rates by 0.25% at its March meeting. Up until recently, there was talk by Fed officials that the economy needed a 0.5% bump to help manage inflation. But their thinking on that may have changed.
Fed Funds Futures Implied Rates
Energy prices have been rising since Russia began to assemble forces at the Ukraine border. As prices rise, consumer discretionary spending trends lower as businesses take on higher costs. (Remember, consumer spending accounts for a big chunk of our overall economy.)
Higher energy prices, higher commodity prices, and the prospect of slower economic growth due to lower spending place the Fed in a bit of a pickle; the inflationary impact of these factors could be considerable.
Inflation on the Rise
Inflation has been rising steadily, affecting us at the gas pump, grocery stores, etc.
Fed Chair Jerome Powell testified before Congress that he still sees interest rate hikes ahead but acknowledges that geopolitical events have interjected uncertainty into the Fed’s outlook.
We’ll know more when the Fed meets this week. Stay tuned…