Fed officials appear unlikely to change course amid conflict in Ukraine

The conflict in Ukraine seems unlikely to shake Federal Reserve officials from their plans to withdraw support for the economy at this ...


The conflict in Ukraine seems unlikely to shake Federal Reserve officials from their plans to withdraw support for the economy at this point, but the rapidly escalating tensions will certainly attract the attention of policymakers and could lead to even higher inflation in the near term.

The central bank has two jobs – to foster full employment and price stability – and it is preparing to raise interest rates and make other policy adjustments to cool the economy as inflation takes hold. fastest in 40 years.

Oil and gas prices have already risen during the conflict and could continue to rise, leading to a higher peak in headline inflation, which includes prices at the pump. The Fed typically avoids reacting to swings in energy prices when setting policy, given volatility in fuel costs, but the potential disruption could make ongoing inflation trends all the more painful. for consumers.

“The Federal Reserve is paying very close attention to geopolitical events, and this one in particular because it’s the most important at this point,” Fed Governor Michelle Bowman said Monday.

Ms Bowman noted that the United States has minor banking, financial and trade interests with Russia, and that “we don’t think it would have a significant impact” on the economy given the small size of those relationships.

“But we recognize that there are significant opportunities for potential impacts on energy markets as we move forward, should things go downhill,” Ms Bowman added. “Obviously we will continue to monitor this, and if we think it could have some influence on the global economy, we will take this into account in our meetings and discuss the economy more broadly.

High fuel prices could weigh on consumer spending on other goods and services, as families spend more of their monthly budget on energy. If the potential for war makes consumers uncertain about the future or drives stock prices down, it could also weigh on demand as nervous buyers pull back.

Central bankers noted in minutes of their last meeting that geopolitical risks “could cause increases in global energy prices or exacerbate global supply shortages”, but also posed a risk to growth prospects.

But officials have portrayed it more as one risk among many than a central area of ​​concern.

“We’ve actually seen fighting in this area of ​​the world in the past,” said James Bullard, president of the Federal Reserve Bank of St. Louis. said on CNBC last seen week. “I think it’s a pretty big foreign policy issue, but I don’t see it as a major macroeconomic issue, at least at this point.”

Assessing exactly what the conflict between Russia and Ukraine will mean for the US economy is difficult because it is unclear to what extent tensions will escalate and because it is not clear how Russia could react as the United States and Europe prepare sanctions.

Additionally, while rising fuel prices could drive up inflation, the global malaise is likely to drive the value of the dollar higher as global investors turn to what they see as “safe haven” assets. . This could make imported products cheaper, which would work in the opposite direction to rising fuel prices.

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Newsrust - US Top News: Fed officials appear unlikely to change course amid conflict in Ukraine
Fed officials appear unlikely to change course amid conflict in Ukraine
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