Fed is Confident to Tackle Inflation Despite Uncertainties in Ukraine

Over the past few weeks, markets around the globe have experienced increasing volatilities due to escalated tensions between Ukraine and Russia. With financial sanctions being imposed on Russian enterprises, the conflict also brings uprising prices to essential commodities like crude oil and worrisome inflation signals. Meanwhile, the Federal Reserve remains confident to tackle inflation, though with caution.

In a testimony about monetary policy before the House Financial Services Committee on March 2nd, Fed Chairman Jerome Powell reiterated the Fed’s commitment to raise interest rates and delivered optimistic signals to the market.

"We're never on auto-pilot," Powell said. "Those of us on the committee have an expectation that inflation will peak and begin to come down this year. And to the extent that inflation comes in higher or is more persistently high than that, then we would be prepared move more aggressively."

Data is seasonally adjusted; Source: Bureau of Labor Statistics, New York Times

Powell’s comment came just before the release of robust US employment numbers as COVID situation eases. In February, the US economy added over 678,000 new jobs and unemployment fell to 3.8%, the lowest level ever since March 2020. As the economy continues to witness a rapid labor rebound, falling Omicron cases accelerates job growth as more workers would expect to return to the office. On a positive note, continual employment recovery would also drive consumption demand and deliver more goods and services, taming inflation concerns.

Overall, analysts from Bridge Point Capital believes that it is still too early to accurately predict long-lasting price correlation with the Ukrainian conflict. Job market’s vibrant recovery might reduce concerns for potential inflationary spiral, yet investors should still closely monitor the development of the Ukrainian conflict and Fed’s reactionary decision on interest rates. The economy’s projection reflects a “rough blueprint than ironclad plan”, according to the New York Times, but at least for now, macroeconomic data is exhibiting positive signs for strong recovery.