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The war in Ukraine complicates the Fed's plan to tackle inflation via rate hikes, experts told Insider.
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The Federal Open Market Committee will hold its first meeting of 2022 on March 15 and 16.
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Powell is likely to de-emphasize forward guidance at his press conference.
The war in Ukraine won't throw the Federal Reserve from its goal of taming hot inflation but it worsens the central bank's visibility on making numerous and aggressive policy moves, market professionals tell Insider.
The Fed's meeting on March 15 and 16 is set to take place as Russia presses on with its invasion of Ukraine, which has sparked a subsequent surge in commodity prices. US inflation is at a fresh 40-year high of 7.9%, a rate that doesn't capture US gas prices that have spiked since the war began late last month. The COVID pandemic, meanwhile, wears on.
"The shock from Russia-Ukraine doesn't clearly point to the Fed being more dovish or more hawkish than they were prior to this because it's a negative shock to [economic] growth as well as a positive shock to inflation," Bill Adams, chief economist at Comerica Bank, told Insider. "It makes it harder for the Fed to balance their dual mandate with the shock pushing both of their objectives further from their goal."
The Federal Open Market Committee is expected to raise its benchmark interest rates by 25 basis points next week. Policymakers slashed the federal funds rate to a range of 0%-0.25% in 2020 as part of their emergency response to the pandemic.
"The market is pricing in a pretty aggressive pace of tightening despite all of the turmoil taking place right now in the economy," Kathy Jones, chief fixed-income strategist at Charles Schwab, told Insider. She said that as of this week, investors were pricing in five more rate hikes after the March meeting.
However, "I think the thing to emphasize right now is anybody who has confidence in their projections is being naïve. We've just have not been here before. The confluence of events is so unusual that everybody's projection should be taken with a grain of salt, including mine," said Jones.
Earlier this year, federal funds futures showed investors pricing in as many as seven rate hikes, she said. Markets were positioned for rate increases of 160 basis points this year through more than six rate hikes, ING said in a note Friday.
Adams and Jones expect Federal Reserve Chairman Jerome Powell next week to indicate the Fed will make monetary policy decisions on a meeting-by-meeting basis rather than take a broad-stroke approach to inflation as it previously suggested.