FX.co ★ JPMorgan and Bank of America expect 7 Fed rate hikes amid geopolitical tensions

The release of January's FOMC meeting minutes was the key event of yesterday. The lack of news about tensions in Eastern Europe was also very important for the stock market. A potential escalation of the conflict between Russia and Ukraine, as well as Russia and the West in general, could have a colossal impact on the markets worldwide. The war could send the cryptocurrency market into a nosedive, for example. With no positive news likely coming up at this point, the stock market, which has barely recovered after January's slump, could sink again at any time. Investors have long priced in multiple interest rate hikes by the Fed this year. The impact of the possible war in Ukraine, on the other hand, is quite uncertain at this point.

A full-scale war between Russia and Ukraine would dwarf the annexation of Crimea and the Donbass conflict in 2014 – the current Russian troop build-up is its biggest concentration of forces in 30 years. More than 100,000 regular Russian troops would face the Ukrainian army, which is also making war preparations. The rest of the world is determined to prevent the conflict, and the West has prepared to impose economic sanctions on Russia. If Ukraine is invaded, these sanctions will sever many economic links with Russia, which would impact the markets.

Any war is highly detrimental for the economy. Russia would have to spend enormous amounts of money on the armed conflict and not on its own economic development. The situation remains dire, and there are no signs of de-escalation at this moment.

In the meantime, JPMorgan and Bank of America now see 7 interest rate increases in 2022, up from 5 in their earlier outlook. If their forecast is correct, the Federal Reserve would raise interest rates at every meeting this year. Furthermore, Bank of America expects major stock indexes to fall by at least 20%. Fund managers polled by BofA stated that the Fed would only adjust its monetary policy and step in to help equity markets after the indexes go down. However, most of them are not concerned by the possible stock market slump and do not see a bearish trend taking place.