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 its March meeting. 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.
The markets have already priced in several rate increases. Fed Funds futures are pricing four or five rate increases in 2022, followed by tow or three more in 2023. In the view of investors, the Fed is most likely to have rates at 1/625% by the end of 2023. Remember that rate increases are healthy and a sign of the economy getting stronger.
Given the media emphasis over concerns of cybersecurity attacks on U.S. financial firms, we wanted to share a few words from T.D. Ameritrade/Charles Schwab:
“Our cybersecurity teams have enhanced monitoring and continuously test the resilience of our platform and cyber technology capabilities against various threat scenarios, including those related to the Eastern European conflict.
We also have a strong network of cybersecurity relationships across the financial services industry, government agencies and law enforcement that share insights and collectively prepare for and defend against current and emerging threats.”
Please reach out if you have any questions or concerns.