Ukrainian War | “Very Uncertain” Impact on US Economy, Fed Says

(Washington) The impact of the war in Ukraine on the US economy is “extremely uncertain,” but it does not prevent the central bank from raising interest rates in two weeks, said Jerome Powell, president of the agency. Said.

Posted at 11:09 am

Delphine TOUITOU
French media agency

“The conflict is causing great difficulty for the Ukrainian people,” said the Federal Reserve Chairman at a hearing in the House of Representatives. “The short-term impact of Ukraine’s invasion, ongoing wars, sanctions, and future events on the US economy remains highly uncertain,” he continues.

He also said he would “watch the situation carefully” and said federal leaders needed to show “great flexibility” in response to changes in economic data and the outlook for major economies.

In the context of the war in Ukraine, the harsh economic sanctions imposed on Russia by the United States and others, and potentially unpredictable events, “making good monetary policy decisions” “changes the economy in unexpected ways. It requires recognition that it is, “he emphasized.

However, Powell believes that raising interest rates at the March 15th and 16th meetings is still “appropriate” given inflation. He argued that this could be particularly helpful in easing prices in the real estate sector.

He also said he would propose a 0.25% increase in interest rates.

“We are ready to act more aggressively by raising the federal funds rate by more than 25 basis points,” he added, if inflation turns out to be high.

Nevertheless, Russia’s invasion of Ukraine has led to a strong recovery in international demand associated with supply shortages and deregulation of the COVID-19 pandemic in many countries.

“Price stability”

Inflation is already at its highest in 40 years in the United States. And in an attempt to stop the price spiral, the Fed has already indicated that it intends to raise interest rates, which have been nearly zero since the start of the pandemic.

Since March 2020, key rates have been in the low 0-0.25% range.

Prior to the conflict in Eastern Europe, some economists expected a significant increase.

Therefore, Powell was eagerly awaiting a hearing in the US Congress on Wednesday and Thursday.

So far, he recalled that in the United States “economic activity recovered at a steady pace of 5.5% last year, reflecting progress in vaccination and economic resumption,” the Fed and the government.

In addition, the rapid spread of Omicron mutants during the winter caused a “constant slowdown in economic activity earlier this year”, while the rapid decline in pollution cases since mid-January has finally stopped “easily”. Caused a blow, he believes.

In particular, 6.7 million jobs will be created in 2021, the labor market is “very tight”, “employment in January will increase significantly” and wages will rise “at the fastest pace in many years”. He says he is.

Adding the unemployment rate, which has fallen sharply over the past year, it was 4% in January, and with the exception of the war in Ukraine, all the conditions for a series of rate hikes this year are in place.

“We know that the best we can do to support a strong labor market is to promote sustainable expansion, which is only possible in an environment where prices are stable. “I am,” emphasized Jerome Powell.

Finally, the Fed reiterated that “we expect inflation to slow this year as supply constraints and demand ease.”