Special Update — Ukraine, Inflation, and the Fed

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Special Update

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It’s been a difficult 24 hours, with many of us waking up to learn about the terrible events in Ukraine.  You’ve likely heard about the possible effects, including a skittish stock market, potential energy supply constriction, and the threat of continuing supply chain disruptions.

What you need to know

  • No changes to our investment portfolios at this stage of the conflict, but we remain cautious in the near term.
  • Limited impact on the US economy and corporate profits.
  • Historically, market reactions during these events prove to be worthwhile long-term investment opportunities.
  • Impact is mainly on inflation, which will stay modestly higher for some part of the year, particularly with fuel costs and food prices.

Let’s discuss.

The seesaw between high tension and relief is likely to add more volatility to markets as investors digest the latest news.

The Federal Reserve may aggressively raise interest rates to fight inflation.3

With inflation at historic highs, some Fed officials worry about the central bank’s credibility.  In other words, their ability to manage inflation and employment is on the line.

Rate hikes are coming in 2022, but how many and how quickly?  That’s up for debate by the Federal Open Market Committee (FOMC) next month.

Fed “Hawks” want to raise rates quickly to try to bring inflation under control and increase consumer confidence and trust.

Fed “Doves” want to carefully raise rates and watch the data to avoid damaging growth or spooking markets.

These are big decisions with big consequences for us, the economy, and markets.

While Federal Open Market Committee (FOMC) meetings are often dry affairs, the next one looks to have as much drama as an episode of Succession.

We’ll stay tuned.

In the meantime, our friends at City National Rochdale have shared a scenario analysis that breaks down the complex situation. 

Bottom line: There are many factors driving market movements, so we can expect to see plenty of volatility in the weeks to come.

Given the Fed and geopolitical tensions at play, a pullback or correction would not be surprising.

What can we do when we're facing major events we can't control?  Take a deep breath, be grateful for all the good in our lives and focus on our strategy.  Let's hope for peace and clarity in the weeks to come.

We’re keeping a close watch and will reach out as needed.

 

Sincerely,

Your Eagle Wealth Team

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