Russia’s invasion of Ukraine is impacting global markets, which means it will be affecting you, too. This conflict comes with a lot of uncertainty that could lead to volatility in global markets. Let’s look at what’s happening and how it affects you.
Inflation and Current Conditions
U.S. markets have been hurt by inflation over the last few years; the Federal Reserve (The Fed) has been in talks about taking action to turn things around. This means that we were already in a more vulnerable state before things started heating up in Ukraine.
The Housing Market
With the Fed’s actions to combat inflation, interest rates are going back up. This is a normal part of trying to control inflation, but the conflict in Ukraine is shaking things up a little.
Typically, when faced with uncertainty, investors will pull money out of the stock market and move it into lower risk options, aka “safe-haven assets.” While this could cause some stress to the stock market, it has some benefit to the housing market.
When more investors move money into US Treasury Bonds, it causes the yield (or percentage return) to go down. When the Treasury yield goes down, interest rates go down, making it cheaper to afford a mortgage. Last week, there was a brief window where this was the case, but it did not last.
Long-Term Impacts
Overall, interest rates are no longer down where they were in 2020 and 2021. The cost of a mortgage across the board is a bit higher due to inflation, but that’s not all. Many countries, including the United States, are imposing sanctions on Russia to express disapproval with military action in Ukraine. These sanctions will hurt supply chains, further increasing inflation.
While the United States does not rely on Russia for much of its resources, many other countries do. Russia is the number one exporter of wheat and a top exporter of oil. As they struggle to deliver the goods other countries rely on, those countries will start to suffer, too. The impacts on the global economy are underway and will be felt by everyone.
Summary
As tensions heat up in Ukraine:
- Investors will more aggressively move money around
- Inflation will continue to rise
- Supply chains will be disrupted
- Things are going to get more expensive
