“The short-term effects of the crisis appear to be inflationary, but the impact on growth is more difficult to identify and puts central bankers in a very difficult position,” said Michael Schumacher, macro-head of Wells Fargo Securities.
Powell did not specify the size of the march. Schumacher believes he will “hint strongly” on Wednesday that the Fed will raise interest rates by 0.25 percentage points.
Others believe he will look to keep all opportunities open, given how fast the situation in Ukraine is developing.
“Once markets calm down, the Fed’s main consequence of geopolitical tensions will be a resumption of inflationary pressures through higher energy prices and recently disrupted supply chains,” Citigroup told customers. The bank believes that Powell will leave the option for a larger increase “on the table”.
Breaking things down: Powell’s testimony will be an important opportunity to give investors some clarity after last week’s turbulence.
The focus will be not only on interest rate prospects, but also on the future of the Fed’s huge bond-buying program, another lever it uses to bolster the economy. The Fed will complete the purchase of tens of billions of dollars in securities earlier this month.
This means that the Fed must be careful about raising interest rates or taking steps to reduce assets on its balance sheet in the event of a recession or new market turmoil.
That’s why the road ahead is so murky. Robert Sears, chief investment officer at Capital Generation Partners, said that if there was any indication that the markets were not functioning properly, the Fed could even start raising its balance sheet from approximately $ 9 trillion again.
“With any risk of infection in the system, you’ll probably see the balances widen,” Sears told me. “There is a will to support the system.”
Oil prices jump above $ 110 a barrel as fears grow
Global crude oil prices rose above $ 110 a barrel, and natural gas prices jumped to a new European record on Wednesday as Russia’s escalating military campaign in Ukraine sparked market fears.
Brent crude futures, the global benchmark, rose nearly 6% to $ 110.90 a barrel at 5:30 a.m. ET. US oil futures are trading at a slight discount of $ 109.30 per barrel. In Europe, the wholesale price of natural gas rose by as much as 60% to a record high of 194 euros ($ 215) per megawatt-hour.
Russia’s energy wealth has not been directly targeted by Western sanctions imposed after the invasion of Ukraine. But Moscow is finding it harder to sell supplies of Russian crude oil to traders and refineries worried they will be caught by the effects of sanctions on the financial system.
Tanker operators are wary of the risk to ships in the Black Sea, and major global oil companies are abandoning operations in the country.
According to analysts at Commerzbank, Russia’s leading oil, Urals, was trading at a $ 18 a barrel discount on Brent oil on Wednesday as buyers avoided Russian exports.
“Differences in oil prices reflect a clear reluctance to take Russian oil and continue to exist [a] the risk of more sanctions that could indirectly or directly affect oil purchases or supplies, ”said Shin Kim of S&P Global Commodity Insights, head of analysis of oil supply and production.
Natural gas flows from Russia to Western Europe continue normally, according to Alex Froley, a market analyst at Independent Commodity Intelligence Services. But there is “a lot of uncertainty and concern about how things can change,” he told me.
What happens next? The massive rise in prices comes despite Western efforts to calm markets. On Tuesday, the United States and 30 other members of the International Energy Agency approved the release of 60 million barrels of emergency oil stocks, which will cover approximately two weeks of Russian oil supplies.
The Organization of the Petroleum Exporting Countries is scheduled to meet with allied producers, including Russia, on Wednesday, as the group is under strong pressure from the West to dramatically increase production. But the Saudi government said on Tuesday that it believes OPEC + should stick to its plan to gradually increase production.
Shipping companies will no longer sail to Russia
Two of the world’s largest container companies are suspending cargo reservations to and from Russia, another strain on the country as its economy comes under enormous pressure from Western sanctions.
“As the stability and security of our operations are already directly and indirectly affected by sanctions, Maersk’s new reservations to and from Russia will be suspended, with the exception of food, medical and humanitarian supplies,” shipping giant Maersk said in a statement. Tuesday.
“We are deeply concerned about how the crisis continues to escalate in Ukraine,” the company added, noting that it has begun to see an effect on global supply chain flows, such as delays, detention of goods by customs in various transhipment centers. , unpredictable operational impacts. “
MSC, a Swiss container company, also said it would suspend all cargo reservations to and from Russia from Tuesday.
Why it matters: These companies were not required to stop sailing under Western sanctions against Russia. But this is an additional sign that companies are interested in severing business ties with the country. There are risks to their corporate reputation and concerns about receiving payments from Russian banks under pressure.
The transition from shipping companies will also increase tensions on the Russian economy, preventing the import of key goods.
“The country has already been cut off from much of the globe’s shipping capacity,” Hargreaves Lansdown analyst Susanna Street said in a research note.
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Also today: Fed Chairman Jerome Powell testifies before the House Financial Services Commission at 10 a.m. ET.