The conflict in Ukraine doesn’t seem to be able to move Federal Reserve officials from plan to support back for the economy at the moment, but rapidly escalating tensions are sure to capture the attention of policymakers and could drive inflation even higher in the near-term.
The central bank has two jobs – promoting full employment and stable prices – and it is prepared to raise interest rates and make other policy adjustments that will over-cool the economy as inflation picks up pace. fastest rate in 40 years.
Oil and gas prices already rose during the conflict and could continue to rise, leading to higher peaks in headline inflation, including pump prices. The Fed generally avoids reacting to fluctuations in energy prices when setting its policy, due to fluctuations in fuel costs, but potential disruptions could make the ongoing inflation trend turn upside down. more painful for the consumer.
“The Federal Reserve pays close attention to geopolitical events, and this is of course special because it is most prominent at this time,” Michelle Bowman, a Fed governor, said Monday. .
Ms. Bowman noted that the US has small banking, financial and commercial interests with Russia and “we don’t believe that will have a significant impact” on the economy given the small size of the ties. that system.
Ms. Bowman added: “But we recognize that there are significant opportunities for potential impacts on energy markets, as we are moving forward, should things go badly. “Obviously we will continue to monitor that and if we believe that could have some effect on the global economy, we will take that into account as we go into our meetings. and discuss the economy more broadly.”
High fuel prices can affect consumer spending on other goods and services as families spend more of their monthly budgets on energy. If the possibility of war leaves consumers uncertain about the future or causes stock prices to plummet, it could also affect demand as anxious shoppers.
Central bank note in minutes of their most recent meeting Geopolitical risks “could increase global energy prices or exacerbate global supply shortages,” but they are also risks to the growth outlook.
But officials have seen it as a risk among many rather than a pivot point of concern.
James Bullard, president of the Federal Reserve Bank of St. said on CNBC last week. “I do think it’s a pretty important foreign policy issue, but I don’t see it as a leading macroeconomic issue, at least at the moment.”
Assessing exactly what the conflict between Russia and Ukraine will mean for the U.S. economy is challenging because it’s unclear how much tensions will escalate and because it’s unclear how Russia might react to it. America and Europe prepare sanctions.
Plus, while rising fuel prices could push inflation higher, global uncertainty is likely to push the dollar’s value higher as global investors turn to what they consider are “safe haven” assets. That can make imported goods cheaper, the opposite effect of increasing fuel costs.
https://www.nytimes.com/2022/02/22/business/economy/ukraine-russia-inflation-fed.html Fed officials appear unlikely to change course amid Ukraine conflict