Financial Associated Press (Shanghai, editor Xiaoxiang) news, in the year of the US midterm elections, the fierce war between Russia and Ukraine suddenly broke out, temporarily shifting the eyes of the American people from high inflation to geopolitical tensions. But for the Biden administration, the burden on its shoulders may not diminish but increase — the war between Russia and Ukraine may not help it slow the recent sharp decline in support, and the multiple risks facing the US economy may cause democrats to lose more parliamentary seats in the midterm elections.
On Thursday, multiple Fed policymakers hinted that the conflict in Ukraine would not affect their decision to raise interest rates next. However, the impact of this geopolitical crisis on the U.S. economy can still be felt in many ways, from the price people pay at gas stations to the blow to family wealth...
Here are three main aspects mentioned by industry insiders:
Energy costs are rising
After the full-blown war between Russia and Ukraine on Thursday, brent crude prices broke through $105 a barrel for the first time since 2014. Rising energy prices could further erode U.S. consumer budgets and put more pressure on inflation, already at its highest level in 40 years.
Gregory Daco, chief economist at EY-Parthenon, said that if oil prices remain around $100 a barrel, energy costs for U.S. households this year could rise by $750 from an average last year, which would reduce their spending on other goods and services. Daco said these increased spending could also be a drag on economic growth.
He expects higher oil prices could boost U.S. inflation by 0.6 percentage points and slow economic growth by 0.4 percentage points this year.
Data released by the Labor Department earlier this week showed that the U.S. Consumer Price Index (CPI) rose sharply by 7.5 percent in January from a year earlier, the fastest pace in nearly 40 years.
"Many people, especially low-income people, will have to spend a lot of their income on buying oil," Richmond Fed President Barkin told reporters after an economic seminar on Thursday, "so if these prices go up, it will dampen consumer spending and dampen the economy." ”
Trade and supply chain
Together, Russia and Ukraine account for less than 1 percent of total U.S. import and export trade, so a conflict between the two countries would not be a direct and significant trade blow to the U.S. economy. Moreover, unlike its European allies, the United States itself is a gas exporter, which should help limit the excessive impact of gas price fluctuations.
However, as global supply chains continue to be plagued by the COVID-19 pandemic, U.S. consumers are certainly already grappling with the sharp rise in the cost of living for everything from cars to food, and any escalation of intrusions and conflicts could further disrupt supply chains and exacerbate upward inflationary pressures.
Russia's Nornickel, for example, is the world's largest supplier of palladium, and automakers use palladium to catalyze converters and purify automotive exhaust. Although palladium prices closed lower at the end of Thursday, they rose at one point during the session to their highest level since Last July. If Russia's palladium supply is interrupted, car production will be affected. At present, the industry is still facing the crisis of lack of core under the epidemic.
Russia and Ukraine also export more than a quarter of the world's wheat, and Ukraine is also a major exporter of corn. Capital Economics analysts said in a client note that while the knock-on effect of rising agricultural costs on consumer price indices tends to be rather weak, it could still boost aggregate inflation in advanced economies by 0.2 to 0.4 percentage points in the coming months.
Michael Strain, an economist at U.S. think tank AEI, said U.S. trade and foreign investment could be indirectly negatively impacted by any turmoil in Europe.
Financial markets are volatile
Intense turbulence in financial markets could also trigger a chain reaction. Jonas Goltermann, senior macro market economist at CapitalEconomics, said: "Major U.S. stock indexes fell in the first few hours after the outbreak of the War between Russia and Ukraine on Thursday, and while they recovered in late trading after U.S. President Joe Biden announced sanctions against Russia, they could still fall further if nothing improves in Ukraine next." "
A fall in the stock market, at least on paper, a pillar of American household wealth, threatens to hit consumer confidence and further dampen demand. After the initial plunge in the pandemic, the market value of U.S. stocks has doubled, and the wealth of households that directly hold stocks and mutual funds has ballooned rapidly, reaching record levels as a percentage of household wealth.
That could push consumer confidence indicators down further — some of which are already at decade-highs due to severe inflation and threaten the outlook for consumer spending.
Carl Tannenbaum, principal analyst at Northern Trust, noted that "a broader conflict in Eastern Europe could trigger a comprehensive reassessment of the outlook for monetary policy, which will exacerbate uncertainty and dampen market sentiment."
Tom Essaye, founder of The Sevens Report, also said, "The suspense now is, how long will the geopolitical turmoil that led to a surge in oil and other commodity prices last? The longer this happens, the more it will stimulate inflation and the greater the resistance to economic growth in the coming months and quarters. And that would create a potentially bad scenario where the Fed tightens policy and commodity prices are very high, posing a headwind to economic growth, which ultimately leads to a slowdown. ”
Is Biden's approval rating likely to decline further?
Whether successive U.S. administrations like it or not, in the year of the midterm elections in Congress, the party that controls the White House usually loses seats in Congress, a political shadow that is almost like a "curse" on Washington. The current situation in Russia and Ukraine, although it has helped the Biden administration temporarily divert the domestic people's complaints about high inflation, will undoubtedly sow the "seeds" of a deeper crisis.
A recent Poll conducted by the Associated Press found that only 26 percent of Americans believe their country should play an important role in the conflict between Ukraine and Russia. 52 percent of respondents said the United States should play a minor role in the ongoing war, while another 20 percent did not want the United States to be involved in the war in any way.
Meanwhile, Gallup's poll found that only 36 percent of Americans believe Biden is doing a good job in handling "relations with Russia," and 55 percent of Americans don't approve of his performance.
Reuters wrote on Thursday that the Russian-Ukrainian crisis could not save Biden's public opinion support, but it was likely to make him lose points further. Biden has said U.S. soldiers will not enter Ukraine, and U.S. voters typically do not vote based on events abroad. But disruptions in energy supplies from Russia to Europe could lead to a surge in gasoline prices in the United States, no doubt adding to the pain Americans already felt as inflation rose to 40-year highs.
Steve Elmendorf, a Democratic strategist, said his reputation could be boosted if the United States and Western allies could fight back against Putin and prop up an independent Ukraine while keeping U.S. troops from entering the war. But he believes that much of the mood of the American people will not depend too much on Ukraine, but more on whether people feel that they are reviving from the COVID-19 crisis.
The crisis between Russia and Ukraine could drag on for weeks, months, or even longer. If Biden is seen as stumbling in dealing with the issue, Republicans who are still focused on obstructing Biden's policy and legislative agenda on the pandemic amid infighting within the party are likely to redouble their efforts to portray the president as weak.
"The situation in Ukraine really distracted Biden," said Scott Reed, a Republican strategy expert, "and it kept him away from the concerns of voters: inflation, gasoline prices, borders." ”