Federal Reserve Chairman Jerome Powell has been tasked with telling Congress this week that the central bank will do more to control inflation at a time when markets expect it to do less.

With fears of a Russian invasion of Ukraine causing a turmoil in the financial world, Wall Street has quietly lowered its expectations for Fed action.

Where markets expected the Fed to raise interest rates sevenfold in 2022, recent pricing now shows only five moves. This would be equivalent to raising the Fed’s short-term reference interest rate by about 125 basis points or in the range of 1.25% -1.5%.

The changing winds mean that Powell has to walk a tightrope, as he explained during a two-day testimony in Congress that his institution is committed to curbing inflation while taking into account geopolitical turmoil.

“He has to stick a pretty thin needle. Balancing will be difficult,” said Mark Zandi, chief economist at Moody’s Analytics. “My feeling is that he is leading by the uncertainty that all this is creating, given that the Russian invasion can take many different paths, each darker than the other. He will reinforce the point that in a period of such heightened uncertainty, it may make sense for the Fed to be a little more cautious in pursuing policy. “

Until about a week ago, markets expected the Federal Open Market Committee to approve increases of 25 basis points at each of the remaining seven meetings this year. He even had a strong inclination towards the first move, at the meeting on March 15-16, with 50 basis points.

Russia’s attack has taken that off the table, at least for now.

“Playing it in your ear would be his best message,” said Peter Bukvar, chief investment officer at Bleakley Advisory Group. “It would allow him to somehow skate around the very difficult position he is in at the moment. We will deal with inflation, but – and this “but” is to see how the economy will go from now on. “

Economists largely expect growth to be solid this year, albeit slightly below 2021, the strongest since 1984. In December, Fed officials predicted that GDP would accelerate by 4% in 2022. d.

However, steady inflation, at its fastest level in 40 years, along with the prospect that the Russia-Ukraine situation could contribute to inflation and further complicate supply chains, puts another wrinkle in the Fed’s policy outlook.

“We are entering a period of stagflation,” said Bukvar, referring to higher inflation and low growth. “The question is whether [Powell] is he focusing more on “deer” or is he focusing more on “flacia”? Only based on the history of monetary policy after Walker has the Fed focused on growth. “

However, other economists disagree.

In a note to customers on Sunday, Goldman Sachs said “very high inflation” this year “should be an easy case” for seven interest rate hikes this year. Bank of America also did not back down from its seven-move forecast, and Citigroup economist Andrew Holenhorst wrote on Tuesday that the market was a little too fast to assess the potential for a 50-point increase against FOMC this month. ‘sFOMCmeeting[базисниточки“насрещатанаFOMCтозимесец[basispoint”hikeatthismonth’sFOMCmeeting

However, by noon on Tuesday, the market had completely eliminated the increase by half a percentage point from the table and actually gave little chance of not moving at all, according to the CME Group. Futures pricing may be volatile, so the likelihood may change if inflation slows or the situation with Ukraine is resolved.

Powell, presenting his half-yearly mandate update to the House of Representatives committee on Wednesday and then to the Senate committee on Thursday, will have to consider a wide range of perspectives on where it should be at a critical time for monetary policy.

“We believe that Powell will emphasize that amid heightened geopolitical uncertainty, the Fed remains focused on its macro goals and will continue to move forward with policy normalization to return inflation to target, while maintaining employment,” Krishna Guha, head of the of central bank policy. strategy for Evercore ISI.

“We believe that he will recognize that the crisis in Russia and Ukraine and its stagflationary impulse from higher energy prices (higher inflation, lower growth) pose additional policy challenges,” Guha added.