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While uncertainty is the watchword of the day, economists believe that a war between Russia and Ukraine will not be a major risk to the U.S. economy.
“In most cases, the economic impact on countries beyond Russia and Ukraine is likely to be limited,” said Neil Shearing, global chief economist at Capital Economics in London, in a note to clients.
St. Louis Fed President James Bullard said last week that, while there were risks and uncertainties, he didn’t see the conflict as central to the U.S. economic outlook.
“I do think its quite an important foreign policy issue, but I’m not seeing it necessarily as a leading macroeconomic issue, at least at this point,” Bullard said, in an interview on CNBC last week.
He noted the U.S. economy didn’t flinch in early 2014 when Russia invaded Crimea.
The conflict is more of a concern for Europe, Bullard said.
Wharton professor Jeremy Siegel said the conflict should not cause the Federal Reserve to delay its plans for hiking interest rates.
The Fed has telegraphed it wants to begin raising its benchmark policy state at its next meeting on March 16. Economists are penciling in a steady pace of five, six or seven quarter-point rate hikes this year.
Talk of a 50 basis point move in March has subsided.
Tim Duy, chief economist at SGH Macro Advisers, said “all else equal, the financial stress associated with the Ukraine tension would argue for a 25 basis point rate hike in March.”
“It is too early to think and hard to imagine the Fed will pass in March,” Duy said.
Energy prices are expected to shoot higher as Western leaders move to sanction Russia for recognizing two breakaway regions of Ukraine and ordering troops into the region.
Higher energy prices will slow down growth and cause higher inflation.
Read: What war in Ukraine would mean for markets
A full-scale invasion of Ukraine by Russia could disrupt the global economy, said Mohamed El-Erian, chief economic adviser to Allianz.
“The global economy and markets are not ready to handle the strong stagflationary winds were such a conflict to break out,” El-Erian said on Twitter over the weekend.
Stocks
DJIA,
SPX,
were lower across the board on Tuesday, while the yield on the 10-year Treasury note
TMUBMUSD10Y,
moved higher to 1.93%.
