War in Ukraine may slow down growth, but it also stokes inflation. The Federal Reserve must weigh these factors.
Federal Reserve Chairman Jerome Powell testifies during the House Financial Services Committee hearing titled Oversight of the Treasury Department's and Federal Reserve's Pandemic Response, in Rayburn Building on Wednesday, December 1, 2021.If you want to see how tough it is to be Federal Reserve Chair Jerome Powell, look at the contrasting comments from Cleveland Fed President Loretta Mester and former Dallas Fed President Richard Fisher.
Matt Maley from Miller Tabak notes that "the Ukraine crisis has the potential to slow growth, so arguably the Fed should go slow in raising rates. But the crisis is also stoking inflation, so the Fed can't ignore that either."Maley believes that Powell will adopt the "middle path:" acknowledge growth worries but stay the course on raising rates.
Maley is particularly worried about the signals from the bond market and what it suggests for potentially lower growth. At the same time, dividend distributions have risen slightly, while earnings expectations have remained about the same.
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