Gasoline prices are displayed at a Sunoco gas station after the inflation rate hit a 40-year high in January, in Philadelphia, Pennsylvania, U.S. February 19, 2022. REUTERS/Hannah Beier

Feb 24 (Reuters) – Federal Reserve policymakers signaled on Thursday that the conflict in Ukraine would not change their view on the expected course of future rate hikes. Read more

But the impact on the US economy could be felt in a variety of ways, from the price people pay for gas at the pump to a hit to household wealth. Here is an overview of some of them.

HIGHER ENERGY COSTS

Oil prices rose on Thursday after the attack, with Brent rising above $105 a barrel for the first time since 2014. read more years.

If oil prices stay around $100 a barrel, US household energy costs could rise by an average of $750 this year compared to last year, leaving them with less money to spend on other things. goods and services, said Gregory Daco, chief economist for EY-Parthenon. . That extra spending could also dampen economic growth, said Daco, who predicts that higher oil prices could raise inflation by 0.6 percentage points this year and slow economic growth by 0.4 percentage points.

Consumer prices rose last month by 7.5% from a year earlier, the fastest pace in nearly 40 years.

“A lot of people, especially low-income people, spend a lot of their income on gasoline,” Richmond Federal Reserve Chairman Thomas Barkin told reporters after an economic symposium in Colonial Heights, in Virginia. “So if those prices go up, it’s dampening consumer spending and dampening the economy.”

TRADE AND SUPPLY CHAINS

Russia and Ukraine combined represent far less than 1% of US imports and exports, so there will be no big trade impacts on the economy of the conflict. The United States, unlike its European allies, is also an exporter of natural gas, which should limit the disproportionate effects on these prices.

But while American consumers are already facing steep cost-of-living increases for everything from automobiles to food as supply chains continue to be hampered by the COVID-19 pandemic, the invasion and any further escalation of the conflict could help keep inflationary pressures high.

For example, Russia’s Nornickel is the world’s largest supplier of palladium, which is used by automakers for catalytic converters and to clean car exhaust. The price of palladium hit its highest level since July on Thursday, and any disruption in Russian supplies would impact auto production, which is still suffering from pandemic-related supply shortages of semiconductor chips.

Russia and Ukraine also export more than a quarter of the world’s wheat, and Ukraine is a major corn exporter. Although the knock-on effect of rising agricultural commodity costs on consumer prices tends to be quite small, it could still add between 0.2 and 0.4 percentage points to headline inflation. in developed economies over the next few months, according to a client note from analysts at Capital Economics.

And US trade and foreign investment could be indirectly negatively affected by any upheaval in Europe, according to AEI economist Michael Strain.

STOCK DROP DRAG

Major U.S. stock indexes fell in the hours after Russia invaded Ukraine, and although they rallied after U.S. President Joe Biden announced sanctions against Russia, “in l ‘Absent any improvement in the situation (in Ukraine), they might still have to run,’ wrote Capital Economics. “Jonas Golterman.

Any decline erodes – at least on paper – a pillar of US household wealth, potentially dealing a blow to consumer confidence and stifling demand. After an initial plunge at the start of the pandemic, stocks have doubled in value and direct holdings of stocks and mutual funds have ballooned to account for a record share of household wealth.

That could drive consumer confidence gauges – some of which are already at their lowest in a decade due to high inflation – even lower and threaten the outlook for consumer spending.

That being said, as Larry Meyer of Monetary Policy Analytics wrote, “weak demand in the United States is far from a concern” and with inflation already high, policymakers may be less bullish on the upside. energy prices than would otherwise be the case. . “If demand were to weaken significantly, the Fed would certainly have tough decisions to make, and we believe it would react,” he wrote. “But today’s risk environment doesn’t give them the luxury of just focusing on downside risks when it comes to risk management.”

OTHER IMPACTS

Some analysts have sounded the alarm.

Carl Weinberg of High Frequency Economics said he expects Vladimir Putin’s arrival in Ukraine to tip the economies of Europe, and possibly the United States, onto a “war footing”. “, leading to shortages of goods and upward pressure on prices. He also warned that Russia could attempt to counter the sanctions with cyberattacks on US or European financial infrastructure, among other possibilities.

Another economist, Carl Tannenbaum of Northern Trust, wrote that “a broader conflict in Eastern Europe could cause a global reassessment of the outlook” for monetary policy, fueling uncertainty and lowering sentiment. But he added: “For now, the risks are on the upside and central banks will tighten policy in response.”

Reporting by Ann Saphir in Berkeley, California, Jonnelle Marte in New York and Lindsay Dunsmuir Editing by Dan Burns and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.