The Russian-Ukrainian crisis and its repercussions on growth and inflation completely reshuffle the cards of the pre-established economic scenarios at the start of the year. Let's be clear, if the impact will be undeniably negative, it is, in our opinion, at this stage, impossible to measure its magnitude as there are so many uncertainties and probable side effects. Growth forecasts, still surely overestimated, are gradually being revised downwards and the impact of the crisis on world GDP for 2022 will surely be greater than 1%, even if the covid crisis has shown us that countries and central banks had the weapons to mitigate the impact.
As for central banks, they are currently in a delicate position as they engage in a phase of monetary tightening to curb inflation, inflation reinforced by the sharp rise in the price of raw materials linked to the geopolitical situation. They must now integrate an economic slowdown scenario with relatively little visibility, the risk being to raise rates and thus restrict financing conditions while the risks to growth increase. Although the room for maneuver of central banks is quite limited, especially since the tools at their disposal have relatively little impact on bottlenecks or the surge in commodity prices, the current crisis has nevertheless made it possible to reduce investors' (rather aggressive) expectations of future rate hikes, which will de facto give central bankers more leeway (and less pressure) in their monetary tightening phase.
As for the Fed, the current crisis should not unduly jeopardize monetary tightening. Jerome Powell, who was speaking to Congress last week, declared himself "inclined to propose and support a 25 bps rate hike" to fight against the rise in inflation, implicitly acknowledging such a move at the March 16 meeting, while being open to increases of 50 bps at future meetings if necessary. The employment data, which fell a little by the wayside on Friday in the current context, militates for this scenario. The BoE should also follow the same path on March 17. Once again by increasing its key rates by 25 bps, even if the active quantitative tightening it wanted to put in place as soon as the rate reaches 1% could be shifted. For the ECB, which is holding its monetary policy meeting this week, the situation is more complex because the zone is more directly impacted by the Russian-Ukrainian situation. If Christine Lagarde's insinuations in February which militated for a more hawkish ECB, she may revert to what was implied back in December where decisions were provided for an increase in the APP (to compensate for the PEPP) until the end of the year before a possible first rate hike in 2023.
