This week financial markets have reacted to the uncertainty about whether Russia will invade the Ukraine and the response it could receive from NATO and the United States. US National security has expressed concerns that an invasion could occur at any time. This threat left markets nervous, and investors were cautious and sought out for traditional safe havens such as the US dollar.
If a war was to occur it would effect consumer and business confidence, while adding to the already strong inflationary pressures. Russia provides the EU with 40% of its oil and coal, and a fifth of its natural gas. There is great concern that Russia will retaliate to western financial sanctions by withdrawing supply of energy resources and adding to economic pressures.
All the tension surrounding Russia and the Ukraine has dominated the news and allowed the publication of the FED January meeting minutes to go under the radar. The Fed have expressed great concern over rising inflation and are going to begin tackling it by raising interest rates and reducing the trillions of dollars in bonds on the central bank balance sheets.
The rate hike is expected as soon as March. Markets have been apprehensive over the past several weeks regarding inflation and the hawkish talk from FED officials. There are predictions of seven 0.25 percentage rate hikes this year meaning the base interest rate will sit at 1.75% as we approach 2023.
