Lindsay, Jonnelle Marte, and Ann Saphir (NYSE:) Dunsmuir

(Reuters] – Federal Reserve policymakers indicated Thursday that they will continue to hike their rates regardless of the outcome of the Ukraine conflict.

However, the U.S. could feel the effects in many ways. From the gasoline price at the pump to the hit on household wealth. Let’s take a closer look at some of these.

HIGHER ENERGY FEES

On Thursday, oil prices rose to $105 per barrel following the attacks. This was the highest level since 2014. Those higher energy prices could eat in to consumers’ budgets and add more pressure to inflation that is already at the highest levels in 40 years.

GRAPHIC: U.S. oil prices surge after Russia invades Ukraine – https://graphics.reuters.com/UKRAINE-CRISIS/USA-FED/jnvwebywyvw/chart.png

Gregory Daco of EY-Parthenon, chief economist, stated that if oil prices remain at $100 per barrel, the average energy cost for U.S. households will rise by $750 this year compared to last year. This would leave them less money for other goods and services. These added costs could be detrimental to economic growth. Daco projects that rising oil prices will increase inflation by 0.6 percent this year, and slow down economic growth by 0.4%.

The fastest rate of change in almost 40 years was 7.5% increase in consumer prices, which rose by 7.5% last month compared to a year ago.

Following an economic symposium at Colonial Heights, Virginia, Thomas Barkin of Richmond Federal Reserve stated, “A lot people, particularly lower-income persons, a large amount of their earnings goes toward gasoline.” “So if those prices go up it dampens consumer spending and dampens the economy.”

TRADE AND SUPPLY CHINS

Russia and Ukraine account for less that 1% each of U.S. trade and imports. This means there are not likely to be large trade losses from this conflict. The United States of America, like its European allies is also an exporter which will limit the impact on prices.

However, American consumers are already struggling against rising costs of everything from food to autos as the COVID-19 pandemic continues to encroach on supply chains. The invasion and any additional escalation could increase inflation pressures.

Nornickel, Russia’s biggest supplier of palladium is used by automakers to make catalytic converters, and clean exhaust fumes. On Thursday, the price of palladium climbed to its highest point since July. Any disruption in Russian supply would affect auto production. Automakers are still experiencing pandemic-related shortages of semiconductor chip supplies.

Russia and Ukraine both export more than 25% of the world’s wheat. Ukraine, a leading corn exporter, is another major exporter. Capital Economics analysts have provided a note to clients that showed the impact of rising agricultural commodity costs on consumer prices is not very strong. However, they believe it will add between 0.02 and 0.4% to the headline inflation in advanced economies over the coming months.

According to Michael Strain, an AEI economist, any turmoil in Europe could have an indirect impact on U.S. foreign trade and investments.

STOCK-DROP DRAG

The stock market indexes of the United States dropped sharply in the wake of Russia’s invasion. They recovered when Joe Biden announced sanctions against Russia. Capital Economics’ Jonas Goltermann wrote that they could have more to run “absent any improvement (in Ukraine)”.

A mainstay of U.S. households wealth is at risk from any drop. This could lead to consumer anxiety and lower demand. Stocks have doubled since the beginning of the pandemic. Direct holdings in stocks and mutual funds now account for an unprecedented share of households’ wealth.

These factors could cause consumer sentiment gauges to fall further and impact the outlook on consumer spending.

GRAPHIC: Household exposure to stocks – https://graphics.reuters.com/UKRAINE-CRISIS/USA-ECONOMY/movandkwapa/chart.png

Monetary Policy Analytics’ Larry Meyer said that weak demand is not an issue in America. In fact, with high inflation, it may seem like policymakers are less concerned about rising energy prices. He wrote that if demand were to fall significantly, the Fed would have to take tough decisions and we believe the Fed will react. “But today’s risk environment does not afford them the luxury of focusing only on downside risks when it comes to risk management.”

AUTOTHER IMPACTS

Some analysts rang the alarm bells.

Carl Weinberg, High Frequency Economics, stated that he expects Vladimir Putin’s entry into Ukraine to cause a shift in the economics of Europe and the United States onto “wartime feet,” which will lead to further price rises and goods shortages. He warned, among others, that Russia might try to counter the sanctions by cyber attacks against U.S. and European financial infrastructures.

Carl Tannenbaum is another economist. Northern Trust (NASDAQ) He wrote: “A broader conflict within Eastern Europe could trigger a wholesale reevaluation” of the outlook for monetary policies, which would fuel uncertainty and drive down sentiment. However, he said that risks were tilted in favor of the upside at present and central bank will increase their policy response.