The central bank’s policymakers will face a tough challenge this Wednesday meeting
The war, inflation, and pandemic are all putting enormous strain on federal policymakers. Investors are now focusing on Wednesday’s meeting, which is expected to include the first interest hike of this year. Central banks are scheduled to exceed their first interest hike this Wednesday. Yet there are major trends and key factors to be considered.
According to Reuter’s latest reports, the world might face a global food crisis as a result of the Russian-Ukrainian war. Europe has sanctioned Russia economically. That also included Russian businessmen. Yet, Putin is still showing signs of resistance, and it won’t stop the war until Ukraine complies with his terms.
On the other hand, the sanction results came fast, but the costs were higher. First, global energy prices and oil prices skyrocketed, reaching $130 per barrel. The U.S. gas prices also soared, yet the prices had cooled down a bit after the talk that the war would end soon.
Why does it appear that the economic consequences of this war are greater than we realize?
Russia is one of the world’s most powerful economic forces, with the world’s second-largest oil, natural gas, and oil exporters, as well as 13% of the world’s fertilizer exporters. The European Union has sanctioned Russian fertilizer exporters, but that will put extra pressure and costs on farmers, which eventually will lead to food crises. Countries that import Russian fertilizer are looking at food crises ahead because of the low fertilizer supply and its high costs.
In the U.S, the unemployment rate has decreased to its lowest level in a long time, the housing market is thriving, and the three major industries are rebounding back. However, policymakers at the Federal Reserve may reconsider how aggrieved they will be and how much they will raise their benchmark rate.
This Wednesday’s policy meeting will determine how much the first interest hike will be and how many times the Federal Reserve will increase its benchmark rate. To cool down inflation, which is by so far the highest rate since 1982, central banks might become very aggressive. Theoretically, this will succeed, but it may initially raise treasury yields and have an impact on small businesses.
Speaking of the global economy, it’s all related. The European sanctions might affect poor countries due to upcoming food crises. On top of that, the interest hikes might also slow down the economic recovery for undeveloped and poor countries that carry debt.
This entire factor, which the central banks will study and determine, will affect the U.S. economic recovery. The last policy meeting was in late January 2022 to estimate how bad the situation would be and how much they needed to increase to shrink inflation. Central banks were hoping that by March, inflation might show a sign of slowing down and declining, but it didn’t.
Instead, now they have more on their plate: inflation and war. The effects of these two trends on the U.S. economic recovery cycle
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