Higher Inflation And Rates Hikes Ahead

Sebastien Callebaut -

Russia's Invasion Of Ukraine Likely To Push Up Inflation

Russia's invasion of Ukraine is likely to raise inflation according to Jerome Powell, which would be a blow to the Fed's predictions of easing pricing pressures in the coming months.

On Thursday, Mr. Powell told the Senate Banking Committee “we’re going to see upward pressure on inflation at least for a while” .

  • According to Refinitiv, the S&P GSCI index, a broad indicator for global raw material prices, has risen 16% this week, putting it on course for the biggest weekly gain since 1970. It has reached its highest point since 2008
  • Brent crude futures rose close to $120 a barrel before dipping on hopes that the US and Iran will reach an agreement on a nuclear deal shortly, bringing more supply to a severely undersupplied market

Fed To Raise Rates In March

Prior to the invasion of Ukraine, Jerome Powell anticipated that the Fed would increase rates by a quarter percentage point at its March 15-16 meeting, followed by a series of rises throughout the year. However, Powell acknowledged this week that the war has altered the risk profile with regards to inflation.

“I do think it’s going to be appropriate for us to proceed along the lines we had in mind before the Ukraine invasion happened” Fed Chairman Jerome Powell testifying at the Senate Banking Committee in March 2022

  • Signals of overheating labor markets, wage rises far above pre-pandemic highs and persistently higher inflation are concerning the Fed's policymakers
  • Powell stated that rate hikes will most likely be in quarter-percentage-point increments, however he stated that if inflation worsens, he might be open to more aggressive measures
  • Moreover, he introduced the possibility of a half-point rises this summer, rejecting the notion that the Fed's speed is limited to quarter-point increases

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Martin Adams on Unsplash.