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Despite the increased economic risk and uncertainty caused by Russia’s invasion of Ukraine, the Federal Reserve said on Thursday that it expects to begin raising interest rates next month as planned.
“Barring an unexpected turn in the economy,” Cleveland Fed President Loretta Mester said, “I believe it will be appropriate to move the funds rate up in March and follow with further increases in the coming months.” Raphael Bostic, President of the Atlanta Fed, stated that the central bank has its own estimates of how the Russian invasion will affect the economy. “If the numbers come in close to that, I believe we can proceed with our liftoff plan,” he said. “We’ll just have to wait and see what happens.” I know that oil prices, as well as natural gas prices, have risen dramatically in recent weeks. That could have repercussions.”
The course of events in Ukraine will most likely influence the rate at which rates are raised.
The Fed’s decision is made more likely by the level of inflation in the United States. The current situation differs from previous episodes in which geopolitical events caused the Fed to postpone or ease tightening, because inflation risk created a stronger and more urgent reason to tighten today than existed in previous episodes.