Markets were already on edge before the war because high inflation is pushing central banks to raise interest rates for the first time in years and halt programs launched to support the global economy after the pandemic struck. Many investors see a recession as still unlikely, but they say the risk of one is rising.
Many investors said the report likely won’t change anything for the Federal Reserve, wich meets next week to vote on interest rates. The wide expectation is that it will raise its key short-term rate by a quarter of a percentage point, which would be the first since 2018. Higher rates slow the economy, and the Fed is trying to raise them enough to tamp down inflation but not so much that it causes a recession.
“The Fed will likely acknowledge the higher food and energy costs, but also acknowledge that there’s little to nothing that monetary policy can do about it,” he said as oil and wheat prices have surged following Russian President Vladimir Putin’s decision to invade Ukraine. “Monetary policy can’t get Putin to back down.”
The yield on the 10-year Treasury, which tracks expectations for inflation and economic growth, wavered immediately after the inflation report’s release. It was recently at 2.01%, up from 1.94% late Wednesday.