The Federal Reserve planned rate hikes to combat inflation might need rethinking as the upcoming conflict in Eastern Europe could impact energy prices. The tensions between Russia and Ukraine have led to concerns of higher oil prices should hostilities erupt, with experts estimating a 10 to 15 dollar price increase per barrel. High oil prices will likely increase the price of petroleum based goods, reduce supply due to higher input costs, and reduce demand. All this leads to a slower economic growth and leaves the Fed with a difficult choice when it come to interests rates over the next few quarters. Higher interest rates compounded by an oil shock could negatively impact growth. On the other hand if the Fed accounts for the possible oil price hike and lowers interest rate, inflation could become a bigger problem. A rate hike is almost certain in March but perhaps global events will influence will force a rethink of the magnitude of the rate hike.
https://www.cnbc.com/2022/02/22/russias-ukraine-incursion-could-complicate-the-federal-reserves-interest-rate-decisions.html
The inflation rate is already moderately high and economists already believe Fed policy will cause a jump in oil prices, increasing inflation. Both the pandemic and the oil crisis are affecting inflation rates and neither can really be fixed, the economy may have to implement a monetary policy.
ReplyDeleteThis is definitely a very difficult situation for the FED. In my opinion, the best option for the FED would be to try to fight our inflation because it is already higher than it should be, and it is only going to keep increasing. We do not know for sure how the tensions will affect petroleum prices, so we should focus on what we know.
ReplyDeleteI think that it is inevitable that the Fed will increase the interest rate in up coming months. Jerome Powell has been very persistent in recent months about countering inflation, but I don't think the next hike will be as high as past expectations. Even as tensions rise in Ukraine I think that it would be best for the Fed to act now given the strength of the labor market.
ReplyDeleteI think that the Fed will continue with the rate hikes. If the White House is working on a deal to remove sanctions on Iran, that should allow their supply of oil to ease pressures on the global market. However, they meet in a few weeks: anything can happen in that time frame to make them think twice about hiking rates.
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