Conflict may slow Fed's plans
The crisis in Ukraine likely takes a 50 basis-point hike in March off the table.
Russia’s full-scale invasion of Ukraine has complicated the already complex task the Federal Reserve has with implementing monetary policy this year. Prior to the dramatic escalation, Fed officials had made clear they must address soaring inflation that they anticipated would recede by now. With the conflict, energy prices are sure to put further pressure on pocketbooks and production lines, and raising interest rates is the preferred tool for policymakers to stamp down inflation.
Yet the fast-developing situation could make the Fed hesitant about moving too fast. The odds of a 50 basis-point hike of the fed funds target range at the March 16 Federal Open Market Committee meeting are much lower now, as policymakers may be hesitant to add more volatility to an already uncertain environment. At this point, we do expect liftoff to occur in March but at a more measured 25 basis-point increment given the geopolitical concerns.
Our liquidity products have no direct exposure to Russia, we have seen no credit-spread widening on any of our approved issuers and European banks on our approved list have minimal exposure to Russia. The demand for short-term U.S. Treasury securities is very high, as it remains the safe haven for investors around the globe.