If he didn’t already have the full attention of U.S. Federal Reserve Chair Jerome Powell, Vladimir Putin sure has it now. An escalation in Ukraine by Russia’s president jeopardises the global economic recovery from Covid-19. Any retaliation also would pour more fuel onto inflationary fires.
Putin on Monday formally recognised two breakaway regions in eastern Ukraine and ordered troops to enter them. Forces were already informally present, and the White House says the move will not automatically trigger sanctions against Russia. Even so, investors are understandably uneasy. Brent crude oil futures are now approaching $100 a barrel as safe-haven currencies like the Japanese yen rally ahead of U.S. stock exchanges opening on Tuesday following the Presidents’ Day holiday.
Uncertainty over whether and how much violence might occur in Ukraine, which Putin has described as part of Russia’s historic homeland, is likely to roil markets for a while.
For Powell and his central banking peers elsewhere, the risk of greater price instability might force them to pick up the pace on rate hikes. Yields on the benchmark 10-year U.S. Treasury bond fell sharply to 1.85% on Tuesday as funds poured into dollars. Overly aggressive tightening also could knock GDP growth off-kilter. Putin is muscling his way into much more than Ukraine.
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