The year 2022 got off to a rocky start, with inflation, economic growth, and the path toward higher interest rates dominating the headlines. Russia's invasion of Ukraine and the intersection of Omicron with China's zero-COVID policy slowed supply chain normalization while influencing inflation and economic growth expectations.
Inflation expectations have kept the Federal Reserve (Fed) in the spotlight since they began their interest rate-raising cycle in March, raising rates by 25 basis points and signalling further rate hikes. The unemployment rate in the United States fell from 3.8% in February to 3.6% in March. Wages continued to rise, but not at the same rate as headline inflation. The annual inflation rate in the United States, as measured by the CPI, reached 7.9% in February.
Russia's invasion of Ukraine was another source of concern for markets, as the conflict's outcome remains uncertain. At this point, the most visible economic impact on developed markets can be seen in the prices of oil, gas, and wheat.
In response to inflationary pressures, the FED raised interest rates by 0.25%, despite internal calls for more aggressive tightening. More increases are expected in 2022.
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