We regret the sad and unfortunate conflict that has taken hold, as Russia invaded the Ukraine last month. Our hearts go out to the families affected. We have received inquiries as to what the Russo-Ukrainian conflict may mean for investors here in the United States, and here are our thoughts.
- Things haven’t been as easy for Russia as was expected, as supply chain issues resulting from pandemic shortages have slowed the progress of the invasion
- This may delay the tax increases under Build Back Better as lawmakers wouldn’t want to stir the pot during such a volatile time
- The conflict may strain the world supply of oil and other fossil fuels, further intensifying the shift to clean energy.
The biggest question, however, is how widespread the crisis will get. It is possible NATO will have to become involved and if there is extreme escalation, we’ll likely see polarization of the major world powers.
Is a March rate increase still on the table?
As the Fed has indicated that the historical low rate environment is about the come to an end, it is reasonable to expect rate increases during the March 15th meeting. After the March meeting, the Fed will meet in May.
The impact may not be as large as expected. Given the instability created by geopolitical events, the Fed will be wary to add fuel to the fire. The rate increase is likely to be a small to moderate uptick of 0.25%.
In advance of this possible development, let’s pause to consider what rising rates may mean for the economy.
- Rate increases may not be as drastic as thought, due to slight tempering of inflation and the Russian invasion.
- Slowing of housing purchases (due to higher interest rate on mortgages)
- Rising debt defaults by consumers
- The US deficit will rise and there will be a risk of debt default
- Lower inflation, but lower consumer confidence as well
- Pressure on company margins
Let’s hope the Fed stays tepid for the short to medium term given all the turmoil happening in the world.
But hoping is never enough. Times like these underscore the importance of diversification and keeping your plans current. We are available if there are questions on how this may impact your portfolio or financial plan. If anything, please reach out.
First Trust, Monday Morning Outlook. February 28th, 2022. ”Thoughts on Ukraine.”