Surging energy prices, and the prospect of sharply higher food prices if grain exports from Russia and Ukraine are curtailed, are stoking fears that inflation will run far higher than central banks have anticipated. This complicates the decision-making calculus of the US Federal Reserve (Fed) and its counterparts.
The conflict is buoying US markets by slightly dampening expectations of US tightening; the S&P 500 index has risen 3.5% since February 23.
The narrowing gap between short- and long-dated US bond yields threatens a yield-curve inversion, an ominous sign for the economic outlook.
The limited scope for the Fed to support markets in a dramatic sell-off will increase volatility, widening in the key corporate debt market.
Index providers MSCI and JP Morgan are likely to remove Russian stocks and bonds from emerging market indices in coming days.
