US policymakers already dealing with inflation stuck at 40-year highs now have another challenge added to their list: Russia’s invasion of Ukraine. What happens a world away can affect American consumers’ pocketbooks because Russia is a major global producer of oil: If sanctions or strife put a crimp in Russia’s spigot to the world, that could send oil prices sharply higher. Those higher energy prices would hit the pocketbooks of everyday Americans already struggling with inflation that recently logged a 7.5% rise from last year. And they also could complicate the picture for the Federal Reserve, whose officials already have signaled they’ll be increasing key interest rates to try to cool down rising prices. Now, those officials might have to move more quickly — and at a greater pace than previously expected, an economic analyst told The Post. “Even before the Russian invasion, the Fed has been rapidly pivoting to withdraw monetary stimulus from the US economy,” Bill Adams, chief economist for Comerica Bank, told The Post, referring to the ultra-low interest rates and bond purchases that have goosed growth. “This crisis pressures them to move even faster,” he said. The Fed had planned to make incremental rate hikes during each of its remaining seven meetings this year. According to Adams, the Russian aggression in Ukraine will likely compel the Fed to push interest rate hikes even further. The US central bank is looking to cool inflation, which is at its highest rate in four decades. Last month the rate of inflation reached 7.5% year-over-year. “I see the Fed’s March decision as a coin toss between a 0.25% and a 0.50% rate hike,” he told The Post. Prior to the Russia-Ukraine crisis, Comerica analysts predicted four 0.25% rate hikes by the Fed in the calendar year. “With Russia now escalating, the Fed will most likely raise rates by 1.25% this year,” Adam said. Just how severe the long-term ramifications will be for Americans’ pocketbooks is unclear — so far it’s a “wild card,” Adams said. “Obviously the crisis could go any number of ways and by extension the range of economic outcomes is just as wide.” While Russia could destabilize Europe and cause short-term shocks, it is not considered a major player in the global economy. Adams notes that Ukrainian and Russian exports to the US have a negligible effect on the American economy, totaling just 0.03% and 0.01% of GDP, respectively. Energy imports from Russia account for just 0.1% of the US GDP, according to Adams. But the US economy could be indirectly affected if energy prices spike in Europe, which could depress European demand for US exports. Americans are also paying more at the pump as the price of global crude crept toward $100 a barrel. Rising gas prices will likely prolong inflation. Higher energy prices in the US could force Americans to show more restraint when spending on non-energy goods and services. The Dow shed more than 1% of its value on Tuesday while the Nasdaq also fell by more than 1.2%. The markets reacted to Putin’s decree on Sunday recognizing breakaway regions of Ukraine occupied by pro-Russian separatist forces as independent republics. Putin then ordered Russian troops into the regions as “peacekeepers” — a move that observers fear is a precursor to a full-scale invasion of Ukraine. The Biden administration has vowed to impose sanctions on the Kremlin in retaliation for any offensive actions against Ukraine. A top adviser to the president, Jon Finer, told CNN that Washington views Russia’s actions in the breakaway regions as tantamount to an “invasion” of Ukraine. One analyst told The Post he takes solace in the fact that Wall Street has averted even more catastrophic losses — for the time being. Dow and Nasdaq futures were down by as much as 3% before paring some of their losses just before the opening bell. “The geopolitical situation remains extremely serious, but as of now, Moscow hasn’t done a full-scale invasion in Ukraine and as a result will likely avoid some of the harsher sanctions,” said Ryan Detrick, chief market strategist for LPL Financial. “Global stock markets are showing a sigh of relief, as stocks are well off the levels we saw last night when futures opened.”
