The Fed Has an Eye on Ukraine

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 the end of its two-day meeting Wednesday. Up until recently, there was talk by Fed officials that the economy needed a 0.5% bump to help manage inflation.

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.

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.