The war in Ukraine has upended economic forecasts. Its effects have been immediate and hugely disruptive, through three main channels. First on confidence, by injecting uncertainty; next on supply, by triggering actual or expected shortages; and third on-demand by stoking inflation. While countries are set to experience very different spillovers from this latest shock, based on how detached they are from the conflict, how dependent they are on the countries involved, and how strong their post-pandemic economies are, none is immune to accelerating inflation, which is already dangerously high. As such, although the Federal Reserve is concerned by domestic inflation, it is unlikely to be very moved by the conflict’s threats to growth, which are primarily in other countries.
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