The markets seem to be breathing a sigh of relief. First the rise last night on Wall Street, today the one convinced by the European stock exchanges which in turn are trying to put aside the fears related to the conflict in Ukraine. Russia’s move to take Ukraine over the past two days has also sparked some social humor about the rise of Putin as the world‘s most influential portfolio manager. Certainly, Putin’s move has set the markets in fibrillation, with the prices of all the main asset classes going up.roller coaster, but on closer inspection most observers point out that today the fundamental problem for the markets remains another. It is called inflation and more than Putin’s moves, investors must be on the alert for what Jerome Powell will do with the Fed called to open fire on the rate hike in about twenty days.
“Today’s market recovery will be short-lived as the market realizes that inflationary pressures are worsening and that the Fed will not be able to abandon its tightening program despite the war in Ukraine,” he tweets today. Althea Spinozzi, SaxoBank Senior Fixed Income Strategist. Just today another important signal came from the PCE Deflator which rose to 6.1% (estimate 6%), on the highest level since 1982.
Fed members seem unwilling to change course
Despite the uncertainty posed byRussian invasion of Ukraine, Federal Reserve officials may stick with their decision to raise interest rates next month. While acknowledging the risks created by the conflict, which triggered one of the worst security crises in Europe since World War II and caused a jump in oil pricesthe Fed is well aware of the urgent need to address theUS inflation peaked since 1982. “With the economy booming and inflation far above target, we should signal that we are moving back to neutrality at a fast pace,” said Christopher Waller, American economist and member of the Federal Reserve. board. A 50 basis point hike would help do that if jobs and price data remain hot in the coming weeks, Waller said in remarks at an event at the University of California. The next Fed meeting will be March 15-16.
Waller stressed that it is “too early to know how the conflict in Ukraine will affect the US economy”.
Atlanta Fed Chairman Raphael Bostic also still expects rates to be hiked in March, as does Richmond Fed chief Thomas Barkin, who said “time will tell” if Ukraine changes the policy outlook. monetary policy, while affirming its inclination to start normalizing policy to counter price pressures.
Could approach become more ‘thoughtful’?
Then there are those like John Traynor, executive vice president and head of investment at People’s United Advisors, argue that the Russia-Ukraine conflict could cause the Fed to be a little more thoughtful about rate hikes. “Just a few days ago, we were looking for a Fed hike of 50 basis points and then 25 basis points at each subsequent meeting …. now we have a cautious Fed. They will likely revert to a 25% rate hike. And that could lead the Fed and especially some of the more dovish members to say “let’s move a little slower”, ”says Traynor.