Cycle Uncertainty: How Is the Russian Invasion Impacting the Economic Cycle?

Key takeaways

  • The Russian invasion of Ukraine on Feb. 24 has created significant uncertainty for the cycle outlook
  • Cycle downgrades from energy price spikes, with the impact larger in Europe than the U.S.
  • Supply chain issues could keep inflation elevated
  • Tail event risks (nuclear, wider war) are small but high impact
  • Fed is expected to be cautious as events unfold, but should still tighten 3-4 times this year
  • Uncertainty places a high bar on sentiment to generate a risk-on call.

First and foremost, the invasion of Ukraine is a humanitarian tragedy. But its implications certainly spread beyond the region. The main cycle risks for the global economy center on:

  • Energy prices and the impact on global growth and inflation
  • Food prices, given Russia and Ukraine’s importance in global wheat and corn exports
  • Supply chain disruption, particularly for motor vehicle parts and semiconductor production