The conflict in Ukraine apparently won’t keep the Fed from beginning its interest-rate increases in March, as planned.
There has been some talk in financial markets that Russia’s invasion of Ukraine might make the Federal Reserve less aggressive in raising interest rates, because the conflict could dent U.S. economic growth.
But Fed officials Thursday indicated that the central bank is still likely to begin lifting rates next month, as Bloomberg points out. The Fed is focused on rampant inflation, with consumer prices soaring 7.5% in the 12 months through January. And the war in Ukraine could actually worsen inflation by pushing commodity prices higher.
“With the economy at full employment and inflation far above target, we should signal that we are moving back to neutral at a fast pace,” Fed Gov. Christopher Waller said Thursday at the University of California, Santa Barbara. “Should the data break against us in the coming weeks, we need to be prepared to hike the policy rate by” 50 basis points.”
To be sure, Waller did say that the Ukraine conflict could ultimately make the Fed less hawkish. “It is possible … that a more modest tightening is appropriate, but that remains to be seen,” he said. It’s “too soon to know how Russia’s attack … will affect the U.S. economy, and it may not be much easier by the time of our March meeting.”
Cleveland Fed President Loretta Mester also said the war’s impact on the U.S. economy will be a part of the Fed’s policy considerations. But she noted in a talk at the University of Delaware that “geopolitical events add upside risk to the inflation forecast, even as they put some downside risk to the near-term growth forecast,” according to Bloomberg.
