By Howard Schneider

WASHINGTON, (Reuters) – The impact of Russia’s invasion in Ukraine on the U.S. could be through a number of different channels, including higher prices and decreased spending, Federal Reserve Chair Jerome Powell stated Thursday. However, it remains to be seen what the final outcome will look like.

What we do know is that commodities prices, and energy prices especially have increased significantly. Powell stated that this is likely to affect the U.S. economy in the form, at the very least, of higher inflation in the near term. We could also see a decline in risk sentiment, which could lead to lower investments. People could be less likely to spend. It is difficult to know what effect this will have on demand and supply.

Powell reiterated his prepared remarks to the House of Representatives Committee on Wednesday, where members were also concerned about Russia’s invasion of Ukraine.

Russia is under severe financial sanctions due to the conflict.

Powell indicated that the Fed had been closely watching the situation and began running simulations on how persistent increases in oil prices could impact the economy.

Powell gave rough rules that the rise in oil price from about $75/barrel in December to approximately $110 per barrel on Thursday (if it holds) could increase headline inflation by nearly 0.9 percent and decrease economic growth by nearly half. These are bad trends as Powell attempts to manage inflation lower while not compromising employment.

Powell stated that Powell believes that the war had not affected the central bank’s intentions to increase interest rates starting at March’s meeting in an effort to slow down price rises that currently run at three times the Fed’s 2% annual goal.

Powell declared, “It’s appropriate that we continue following the lines that were in place before the Ukraine invasion occurred.” He reiterated his Wednesday comments that Powell would support a quarter-percentage point rise in Fed’s benchmark interest rate during the meeting on March 15-16.

Powell stated that if inflation continues to rise, Powell would be willing to increase the amount by more than this in any meeting.

However, lawmakers focused on the Fed’s current situation and suggested that it could face a worse scenario where inflation rises due to war and growth slows down.

According to Senator Pat Toomey (Republican from Pennsylvania), “I’m a bit concerned that this war has altered the risk profile.”

Powell noted that “Both the supply side and the demand side” is uncertain, but noted that “strong financial health” of businesses and households may allow for spending to continue.