The Ukrainian-Russian war cloud resumed on Thursday (17th), and foreign media columnist James Mackintosh pointed out that if the two countries really have to go to war, don’t expect the Federal Reserve (Fed) to rescue the market this time.
Ukraine and Russia spoke their own words on Thursday. Russian media reported that Ukrainian troops opened fire in the pro-Russian “Luhansk People’s Republic” area in eastern Ukraine.
U.S. President Joe Biden said on Thursday that he sees a very high risk of a Russian invasion of Ukraine, which could happen “in the next few days,” even if Russia claims to be withdrawing its troops. However, Russian Foreign Minister Sergei Lavrov said that the joint military exercises between Russia and Belarus will end as planned this Sunday (20th), and Russia will also give an answer to the US negotiations on Thursday.
In a special report on Thursday, Mackintosh pointed out that if Ukraine and Russia do go to war, don’t expect the Fed to bail out the market this time, because deteriorating inflation, near-zero interest rates, and the experience of the 1970s have made the Fed suffer everywhere. Constraints, if you want to save the market, I am afraid it is not as easy as before.
Usually when a crisis hits, investors think the Fed will come to the rescue, but this time the Fed’s chief public enemy is inflation.
The Fed’s current plan is to raise interest rates next month, and well-known financial giant Kyle Bass warned last month that if the Fed sticks to its plan, Wall Street can’t expect the stock market to continue to rise this year, and may even plummet.
Mackintosh said that if the Ukrainian-Russian war breaks out, international oil prices and European natural gas prices will inevitably soar, and inflation will worsen again, and raising interest rates will not help to extract more oil. demand.
In the face of continued supply chain bottlenecks such as chip shortages, global port congestion, and labor shortages, Fed Chairman Powell recently said that inflation is not “temporary”. Survey data showed that U.S. consumers’ expectations for inflation in the coming year remained at a record high of 6%.
The wage-price spiral worries economists, and unions play a powerful role, but will it go away without unions, Mackintosh said? No one knows the answer, not even the Fed.
Mackintosh also mentioned that similar to the 1970s is not only the risk of a wage price spiral, but in every recession since 1981, the Fed has responded with rate cuts, lacking flexibility, and the Fed is now far Lagging behind the inflation curve is even less flexible.
Mackintosh said that in addition to economic constraints, the Fed is also subject to political constraints. Inflation has made people complain, and the two parties and the entire country are filled with inflation concerns. If the Russian army invades Ukraine, the Fed will no longer be able to cut interest rates. Even buying more bonds won’t do much, and when things get out of hand, not raising rates is obviously not as effective as cutting them.