Evelyn Reynolds

The Russian invasion of Ukraine strains the long-held idea that shared interests around business and commerce can deflect military conflict.Russia’s war in Ukraine is not only reshaping the strategic and political order in Europe, it is also upending long-held assumptions about the intricate connections that are a signature of the global economy.Millions of times a day, far-flung exchanges of money and goods crisscross land borders and oceans, creating enormous wealth, however unequally distributed. But those connections have also exposed economies to financial upheaval and crippling shortages when the flows are interrupted.The snarled supply lines and shortfalls caused by the pandemic created a wide awareness of these vulnerabilities. Now, the invasion has delivered a bracing new spur to governments in Europe and elsewhere to reassess how to balance the desire for efficiency and growth with the need for self-sufficiency and national security.And it is calling into question a tenet of liberal capitalism — that shared economic interests help prevent military conflicts.It is an idea that stretches back over the centuries and has been endorsed by romantic idealists and steely realists. The philosophers John Stuart Mill and Immanuel Kant wrote about it in treatises. The British politicians Richard Cobden and John Bright invoked it in the 19th century to repeal the protectionist Corn Laws, the tariffs and restrictions imposed on imported grains that shielded landowners from competition and stifled free trade.Later, Norman Angell was awarded the Nobel Peace Prize for writing that world leaders were under “A Great Illusion” that armed conflict and conquest would bring greater wealth. During the Cold War, it was an element of the rationale for détente with the Soviet Union — to, as Henry Kissinger said, “create links that will provide incentive for moderation.”German Chancellor Olaf Scholz in Moscow last month. Since the fall of the Soviet Union, policies by Germany and other European countries have been partly shaped by the idea that economic ties with Russia could deflect conflict.Pool photo by Maxim ShemetovSince the disintegration of the Soviet Union three decades ago, the idea that economic ties can help prevent conflict has partly guided the policies toward Russia by Germany, Italy and several other European nations.Today, Russia is the world’s largest exporter of oil and wheat. The European Union was its biggest trading partner, receiving 40 percent of its natural gas, 25 percent of its oil and a hefty portion of its coal from Russia. Russia also supplies other countries with raw materials like palladium, titanium, neon and aluminum that are used in everything from semiconductors to car manufacturing.Just last summer, Russian, British, French and German gas companies completed a decade-long, $11 billion project to build a direct pipeline, Nord Stream 2, that was awaiting approval from a German regulator. But Germany halted certification of the pipeline after Russia recognized two separatist regions in Ukraine.From the start, part of Germany’s argument for the pipeline — the second to connect Russia and Germany — was that it would more closely align Russia’s interests with Europe’s. Germany also built its climate policy around Russian oil and gas, assuming it would provide energy as Germany developed more renewable sources and closed its nuclear power plants.Benefits ran both ways. Globalization rescued Russia from a financial meltdown and staggering inflation in 1998 — and ultimately smoothed the way for the rise to power of Vladimir V. Putin, Russia’s president. Money earned from energy exports accounted for a quarter of Russia’s gross domestic product last year.The Nord Stream 2 plant in Germany. The pipeline had been seen as a way to align Russia’s interests with those of Germany. Now it has been shelved.Michael Sohn/Associated PressCritics of Nord Stream 2, particularly in the United States and Eastern Europe, warned that increasing reliance on Russian energy would give it too much leverage, a point that President Ronald Reagan made 40 years earlier to block a previous pipeline. Europeans were still under an illusion, the argument went, only this time it was that economic ties would prevent baldfaced aggression.Still, more recently, those economic ties contributed to skepticism that Russia would launch an all-out attack on Ukraine in defiance of its major trading partners.In the weeks leading up to the invasion, many European leaders demurred from joining what they viewed as the United States’ overhyped warnings. One by one, French President Emmanuel Macron, German Chancellor Olaf Scholz and Italian Prime Minister Mario Draghi talked or met with Mr. Putin, hopeful that a diplomatic settlement would prevail.There are good reasons for the European Union to believe that economic ties would bind potential combatants more closely together, said Richard Haass, president of the Council on Foreign Relations. The proof was the European Union itself. The organization’s roots go back to the creation after World War II of the European Coal and Steel Community, a pact among six nations meant to avert conflict by pooling control of these two essential commodities.“The idea was that if you knit together the French and German economies, they wouldn’t be able to go to war,” Mr. Haass said. The aim was to prevent World War III.Scholars have attempted to prove that the theory worked in the real world — studying tens of thousands of trade relations and military conflicts over several decades — and have come to different conclusions.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

Friday’s February employment report is expected to show the economy added 440,000 jobs and unemployment fell to 3.9%, according to Dow Jones.
Wage growth is expected to be a strong 5.8% year-over-year, a number carefully watched because inflation has been running hotter than expected.
The jobs data is the final major labor report ahead of the Federal Reserve’s March 15-16 meeting, where it is expected to raise interest rates.

A worker drills plywood on a single family home under construction in Lehi, Utah, on Friday, Jan. 7, 2022.
George Frey | Bloomberg | Getty Images

The economy was likely to have added jobs at a healthy pace in February and wages gains were strong.
The February employment report, released at 8:30 a.m. Friday, is the final monthly employment data the Federal Reserve will consider before it meets March 15 and 16. The central bank is widely expected to raise interest rates at that meeting in its first hike since 2018.

Economists expect 440,000 jobs were created in February, according to Dow Jones. That compares to 467,000 in January. Wages were expected to rise by 0.5% or 5.8% year-over-year, and the unemployment rate is expected to fall to 3.9%, off 0.1 percentage points, according to Dow Jones.
“The labor market is tightening pretty fast, and there’s no end in sight to strong wage growth,” said Ethan Harris, head of global economics at Bank of America. “It’s still going to be a very tight labor market…and our guess is wage inflation stays close to 6% throughout the year.” Wage growth was 5.68% year-over-year in January.
The Fed’s dual mandate is full employment and price stabilization. The central bank is hitting its goal on employment, but it is expected to battle rising inflation with a series of interest rate hikes. The first of those hikes is expected to be a quarter point increase in March and then as many as six more over the course of this year.
“For the Fed, this just keeps them on track,” said Harris.
Economists are keeping a close eye on wages, as inflation is running hot and is expected to go even higher with the recent jump in oil prices after Russia’s Ukraine invasion. The consumer price index jumped 7.5% on a year-over-year basis in January and is expected to be even higher in February when it is released next week.

There is a concern that if wage gains are too strong that they begin to feed a wage and price spiral.
But rising wages are a driver of economic growth since they can support the consumer. Michael Gapen, chief U.S. economist at Barclays, said he had expected to see households pulling funds from savings this quarter to support consumption, but rising wages could reduce the hit to savings.
“It’s going to come from labor market income rather than just drawdown,” he said. “You want the labor market to kick off solid income growth.”
Economists said job growth was likely to come from a broad range of industries. There were expected to be gains in leisure and hospitality.

“The supply chain issues are still an issue impeding manufacturing but less so particularly in the vehicle sector. They do seem to be getting their production schedules back up,” said Mark Zandi, chief economist at Moody’s Analytics. “Construction seems more problematic. There’s a record number of homes in the pipeline. They just can’t seem to get anything across the finish line.” He said the industry has been impacted by parts shortages and labor shortages.
Tom Simons, money market economist at Jefferies, said the labor market continues to be plagued by a shortage of supply.
“One thing that’s a limiting factor is supply of labor. We should still see that reflected in strong wage numbers. It’s going to be reflected in another dip in unemployment,” said Simons.
Simons said he also is watching wage gains. “It is a big deal in terms of just trying to conceptualize how well the consumer can keep up with inflation,” said Simons. “The labor market is so tight, and there’s still pent up demand for various things. It seems reasonable that wages will continue to climb as employers compete to secure workers.”

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Jerome H. Powell, the Federal Reserve chair, told senators on Thursday that policymakers were prepared to rein in inflation as they tried to fulfill their price stability goal — even if that came at an economic cost.“We’re going to use our tools, and we’re going to get this done,” Mr. Powell told the Senate Banking Committee.Mr. Powell has signaled that the Fed is poised to raise interest rates by a quarter percentage point at its meeting that ends March 16, and follow up with additional rate increases over the next several months. Fed officials are also planning to come up with a strategy for shrinking their vast holdings of government-backed debt, which will increase longer-term interest rates.The suite of policy changes will be an effort to weigh on demand, tamping down price increases that are running at their fastest pace in 40 years. The Fed aims for 2 percent price gains on average over time, but inflation came in at 6.1 percent in the year through January.Asked if the Fed was prepared to do whatever it took to control inflation — even if that meant temporarily harming the economy, as Paul Volcker did while Fed chair in the early 1980s — Mr. Powell said it was.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“I knew Paul Volcker,” he said during his testimony. “I think he was one of the great public servants of the era — the greatest economic public servant of the era. I hope that history will record that the answer to your question is yes.”Mr. Volcker’s campaign against double-digit price increases pushed unemployment above 10 percent in the early 1980s, hurting the economy so severely that wages and prices began to slow down.But central bankers are hoping they can engineer a smoother economic cool-down this time.They are reacting much faster to high inflation than officials did in the 1960s and 1970s, and data suggests that consumers and businesses, while cognizant of inflation, have not yet come to expect rapid increases year after year. By cooling off demand a little, the Fed’s policies may work together with easing supply chain problems to bring inflation down without tossing people out of jobs.“Mortgage rates will go up, the rates for car loans — all of those rates that affect consumers’ buying decisions,” Mr. Powell said of the way higher rates would work. “Housing prices won’t go up as much, and equity prices won’t go up as much, so people will spend less.”The goal is to allow factories and businesses to catch up so shoppers are no longer competing for a limited stock of goods and services, creating shortages that enable companies to raise prices without scaring voracious buyers away.Inflation F.A.Q.Card 1 of 6What is inflation? More

Even countries with limited trade relationships are intertwined in capital markets in today’s world. Could the Russia sanctions change that?The United States, Europe and their allies are not launching missiles or sending troops to push back against Russia’s invasion of Ukraine, so they have weaponized the most powerful nonmilitary tool they have available: the global financial system.Over the past few days, they have frozen hundreds of billions of dollars of Russian assets that are held by their own financial institutions; removed Russian banks from SWIFT, the messaging system that enables international payments; and made many types of foreign investment in the country exceedingly difficult, if not impossible.The impact of this brand of supercharged economic warfare was immediate. By Thursday, the value of the Russian ruble had reached a record low, despite efforts by the Bank of Russia to prop up its value. Trading on the Moscow stock market was suspended for a fourth day, and financial behemoths stumbled. Sberbank, Russia’s largest lender, was forced to close its European subsidiaries after running out of cash. At one point, its shares on the London Stock Exchange dropped to a single penny.There’s more to come. Inflation, which is already high in Russia, is likely to accelerate along with shortages, especially of imported goods like cars, cellphones, laptops and packaged medicines. Companies around the world are pulling investments and operations out of Russia.The sanctions “are severe enough to dismantle Russia’s economy and financial system, something we have never seen in history,” Carl B. Weinberg, chief economist at High Frequency Economics, wrote this week.Russia had been working to “sanction proof” itself in recent years by further paring down its financial ties to the West, including reducing its dependence on the U.S. dollar and other common reserve currencies. It built a fat reservoir of foreign exchange reserves as a bulwark against hard times, trying to protect the value of its currency. It also shifted its holdings sharply away from French, American and German assets and toward Chinese and Japanese ones, as well as toward gold. Its banks, too, tried to “reduce the exposure to risks related to a loss of U.S. dollar access,” the Institute of International Finance said in a February report.But the disaster now rippling through the nation’s banks, markets and streets is evidence that autonomy is a myth in a modern globalized world.The United Nations recognizes roughly 180 currencies, but “the reality is most global payments are still intermediated through a Western currency-dominated financial system,” said Eswar Prasad, a professor of international trade policy at Cornell University.Most of global commerce is carried out in dollars and euros, making it hard for Russia to avoid the currencies. And as much as half of the $643 billion in foreign exchange reserves owned by the Russian central bank is under the digital thumb of central and commercial banks in the United States, Europe and their allies.“They control the wealth of the world,” even the parts that they don’t own, said Michael S. Bernstam, a research fellow at the Hoover Institution at Stanford University.While there has been speculation that Russia could mute the fallout of the sanctions by using its gold reserves, turning to Chinese yuan or transacting in cryptocurrency, so far those alternatives seem unlikely to be enough to forestall financial pain.“When the world’s biggest economies and deepest and most liquid financial markets band together and put this level of restrictions on the largest Russian banks, including the Russian central bank, it is very difficult to find a way to significantly offset large parts of that,” Janet L. Yellen, the Treasury secretary, told reporters on Wednesday. “I believe these will continue to bite.”The sanctions may come with a longer-term cost. The West’s overwhelming control could, in the long run, encourage other nations to create alternative financial systems, perhaps by setting up their own banking networks or even backing away from reliance on the dollar to conduct international transactions.A market in Moscow this week. Inflation, already high, is likely to accelerate from shortages created by sanctions.Sergey Ponomarev for The New York Times“I would liken them to very powerful antibiotics,” said Benn Steil, a senior fellow at the Council on Foreign Relations. “If they’re overprescribed, eventually the bacteria become resistant.”Other countries, like Iran, North Korea and Venezuela, have experienced these sorts of financial penalties before, losing their access to SWIFT or to some of their foreign exchange reserves. But the array of restrictions has never been slapped on a country as large as Russia.During congressional testimony this week, Jerome H. Powell, the Federal Reserve chair, was asked how easily he thought China and Russia could create an alternative service that could undermine the effectiveness of SWIFT sanctions in the future.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

Some retailers, including Victoria’s Secret, are warning about business impacts from the Ukraine crisis. Others, like Nike, have suspended operations in Russia.
“We are deeply troubled by the devastating crisis in Ukraine and our thoughts are with all those impacted, including our employees, partners and their families in the region,” a Nike spokeswoman said.
Analysts say the biggest concern for retailers is how long the conflict and the surrounding uncertainty drag on.

Employees put wooden shields on the window of Louis Vuitton shop in Kyiv on February 24, 2022 as Russia’s ground forces invaded Ukraine from several directions today, encircling the country within hours of Russian President announcing his decision to launch an assault.
Sergei Supinsky | AFP | Getty Images

Rising inflation and global supply chain strains remain top of mind for retailers as they navigate the post-holiday earnings season. But also making its way into conversations with analysts and investors is Russia’s invasion of Ukraine, which entered its second week on Thursday.
A number of retailers have temporarily halted operations in Russia, either as a signal of corporate condemnation of the war or because these companies are unable to carry on business in the country due to imposed sanctions impacting logistics.

Some, such as Victoria’s Secret, are warning that uncertainty created by the war could weigh on business in the first quarter and potentially beyond.
The biggest concern for many retailers will likely be the duration of the crisis, said Chuck Grom, an analyst with Gordon Haskett.
“You have to think the longer it goes on, the more problematic” it gets, Grom said. “In other words, the consumer spends more time getting absorbed with the situation.”
Retailers are already trying to gauge future demand in still unpredictable times and keep shelves stocked without ordering too much merchandise. Businesses are trying to lure consumers back into their stores as Covid cases wane and immunity increases. Yet it could prove to be trickier than this time a year ago, when President Joe Biden and Congress signed off on stimulus payments to families.
Pittsburgh-based clothing retailer American Eagle Outfitters said Wednesday it is taking the war between Russia and Ukraine into consideration when forecasting its outlook for the year, though it didn’t offer specifics on how much of a financial impact the war could have on consumer demand. American Eagle doesn’t operate any brick-and-mortar shops outside of North America and Hong Kong, but it ships merchandise to 81 countries.

Chief Financial Officer Michael Mathias said on an earnings conference call that the retailer is cognizant of multiple factors currently at play: Rising inflation, the fact that American Eagle is beginning to lap a period during which stimulus payments were issued to many consumers last spring, and continued disruption in the global supply chain, “including the war in Ukraine.”
“Against this backdrop, we’re taking a cautious view,” Mathias said.
American Eagle warned that its earnings will decline in the first half of the year compared with prior-year levels, in large part due to heightened freight costs. It does expect earnings to rebound in the back half.
Lingerie retailer Victoria’s Secret, which has a small presence in Russia, also made a slight mention of the war. When it reported its fiscal fourth-quarter results Wednesday, it said inflation and “global unrest” will create a challenging environment in the coming months. Victoria’s Secret issued a disappointing outlook for the first quarter but said it believes the third quarter will be an inflection point for better results.
Kohl’s Chief Executive Michelle Gass was asked Tuesday, on an earnings conference call with analysts, about the situation in Ukraine and how it might hurt the department store chain’s business.
“We’re prepared that there’s going to be an environment of a lot of uncertainty. We certainly contemplated that as we guided this year,” Gass said on the call. “We’ll stay close and be responsive.”

Retailers shut stores and make contingency plans

All of this could weigh heavily on the American consumer. Companies, from food producers to auto makers, will likely bear greater burdens from skyrocketing oil prices and ongoing supply chain headaches. Price increases are often passed on to the customer.
“There are implications for U.S. retailers in the higher cost of energy, because of the interruption of and disruption in energy markets,” said David French, senior vice president of government relations at the National Retail Federation, the leading retail trade group. “And there are implications for U.S. retailers in food prices, because of the significance of Ukraine and Russia … as major agricultural regions.”
“Those are probably the biggest first-order effects,” he said, adding that many U.S.-based retailers have modest exposure to Russia and Ukraine, if any. He did mention Ukraine being a major hub for companies outsourcing IT help, however, which could become a larger issue if the crisis persists.
French emphasized that even during the pandemic, consumers have been reporting that their confidence is down but at the same time they’re shopping as if consumer confidence is way up. Holiday retail sales in 2021 surged a record 14.1% from prior-year levels, according to NRF, in spite of inflation and the spreading omicron variant.
BMO Capital Markets analyst Simeon Siegel echoed this sentiment. “Setting aside what it says about humanity, as we learned with Covid, people are really good about not letting things bother them until it knocks at their door,” Siegel said.
At the same time, companies have been quick to take a stance on the Kremlin’s invasion of Ukraine.
Furniture retailer Ikea said Thursday it is closing all of its stores in Russia, stopping production in the country and halting all exports and imports to and from Russia and Belarus.
“The war has both a huge human impact and is resulting in serious disruptions to supply chain and trading conditions, which is why the company groups have decided to temporarily pause Ikea operations in Russia,” the company said in a statement.
Nike, fast-fashion retailer H&M, and coat maker Canada Goose have all said they’re suspending sales in Russia, too.
A statement on Nike’s website in Russia says the sneaker giant can’t currently guarantee product delivery in Russia. A Nike spokeswoman told CNBC that given the rapidly evolving situation, along with increased operational challenges, Nike decided to pause its business in the region.
“We are deeply troubled by the devastating crisis in Ukraine and our thoughts are with all those impacted, including our employees, partners and their families in the region,” the spokeswoman said.
British online fashion retailers Boohoo and Asos have also both suspended sales in Russia. On Thursday, the off-price retailer TJX said in a securities filing that it would be selling its 25% stake in the low-cost Russian apparel retailer Familia, which has more than 400 stores in Russia. As a result of the sale, TJX said it may have to report impairments charges.
Craig Johnson, founder of the retailer consulting group CGP, said he expects that retailers or brands with a presence in central and eastern Europe are likely already developing, if not implementing, contingency plans.
“Contingency plans are most critical for in-store and back office employees and hours of operations,” Johnson said. “But they also include plans for physical and cyber security, vendor and public communications, and trimming or delaying merchandise receipts as warranted.”
This story is developing. Please check back for updates.

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Initial claims for unemployment insurance totaled 215,000, below the 225,000 estimate.
That was the lowest level since Jan. 1 and comes a day ahead of the closely watched nonfarm payrolls report for February.
A separate report showed Q4 productivity up 6.6%, slightly less than expected, but with a rise in unit labor costs that was well ahead of estimates.

Initial claims for unemployment insurance totaled 215,000, the lowest tally since the beginning of the year and fewer than Wall Street estimates, the Labor Department said Thursday.
Economists surveyed by Dow Jones had been looking for first-time filings to come in at 225,000 for the week ended Feb. 26.

A separate report from the Bureau of Labor Statistics showed that nonfarm productivity rose 6.6% in the fourth quarter, slightly less than the estimate for 6.7%. However, unit labor costs rose 0.9%, well ahead of the expected 0.3%.
On jobless claims, last week’s total represented a decline of 18,000 from the previous week and was the lowest since Jan. 1.
Continuing claims, which run a week behind the headline number, edged higher to 1.48 million. However, the four-week moving average, which smooths out weekly volatility, moved down to 1.54 million, the lowest level since April 4, 1970.

The total of those receiving benefits under all programs fell further, dropping to 1.97 million, a decline of 62,625.
The jobless numbers come a day before the BLS’ closely watched nonfarm payrolls report. Wall Street is looking for a gain of 440,000 in February, following up the much stronger-than-expected 467,000 total in January.

Companies are still trying to fill nearly 11 million job openings at a time when the worker shortage has expanded to unprecedented levels. There are about 4.4 million more employment openings than there are unemployed workers looking for jobs.
Wages have surged in the current environment, with average hourly earnings up 5.7% in January, a level well above anything seen in the pre-pandemic environment, according to Labor Department data going back about 15 years.
Unit labor costs continued to increase in the last three months of 2021, though at a lower pace than the previous quarter due in large part to the jump in productivity. A 7.5% rise in hourly compensation was largely offset by the 6.6% productivity rise. For the full year, unit labor costs were up 3.6%, down from the 4.3% gain in 2020.
Federal Reserve policymakers are about to tackle the inflation issue with an expected series of rate increases.
Fed Chairman Jerome Powell on Wednesday called the labor market “extremely tight” and said he expects the first rate hike to come at the central bank’s policymaking meeting later this month.

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Applications to refinance a home loan increased 1% last week but were still 56% lower than the same week one year ago.
Mortgage applications to purchase a home fell 2% for the week and were 9% lower year over year.
While mortgage rates rose to the highest level in two years last week, they have since fallen quite sharply due to the war in Ukraine.

A house’s real estate for sale sign shows an upcoming open house in Washington, DC.
Saul Loeb | AFP | Getty Images

Mortgage demand stalled last week, as interest rates hit a multiyear high, but that will likely change quickly. Rates are now falling fast due to the Russian invasion of Ukraine.
Mortgage application volume was essentially flat compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Borrowers had no incentive to refinance, and homebuyers continue to face high prices and a severe lack of listings.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.15% from 4.06%, with points decreasing to 0.44 from 0.48 (including the origination fee) for loans with a 20% down payment.
Applications to refinance a home loan increased 1% for the week but were still 56% lower than the same week one year ago. Rates were 92 basis points lower a year ago, so there were far fewer borrowers who could benefit from a refinance. The refinance share of mortgage activity decreased to 49.9% of total applications from 50.1% the previous week.

Mortgage applications to purchase a home fell 2% for the week and were 9% lower year over year. Buyers are now seeing prices appreciate at the fastest pace in more than 45 years, up just over 19% from a year ago in January, according to a new report Tuesday from CoreLogic. As a result the average loan size increased to yet another record high of $454,400.
These dynamics will likely now shift, due to a sharp drop in mortgage rates this week. The war in Ukraine has caused investors to rush into the bond market, which resulted in lower yields. Mortgage rates loosely follow the yield on the U.S. 10-year Treasury. The average rate on the 30-year fixed fell 28 basis points in just the past two days, according to Mortgage News Daily.
The expectation going into this year was that rates would move higher steadily, as the Federal Reserve eases its purchases and holdings of mortgage-backed bonds. The Fed has not made any changes to its plan for that so far, so it is possible that the drop in mortgage rates will be brief. Lower mortgage rates will continue to put upward pressure on home prices, especially given the drastic imbalance of record low supply and strong demand.

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Jerome H. Powell, the Federal Reserve chair, told lawmakers on Wednesday that the central bank is poised to lift interest rates at its meeting this month as it tries to cool down high inflation — saying that while Russia’s invasion of Ukraine is ramping up economic uncertainty, it isn’t yet shaking the Fed off its course.Mr. Powell, testifying before the House Financial Services Committee, said the economic path ahead remained unsettled as Russia invaded Ukraine and the world reacted. He outlined with more clarity than usual how the Fed is thinking about policy in the coming months, saying, “We are going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”With inflation running hot, the labor market showing strength and the economy growing rapidly, the Fed’s leader said he thought a quarter-point interest rate increase would be appropriate at the central bank’s meeting, which will conclude on March 16. He expects the Fed to make a “series” of increases this year. And he thinks officials will agree to a plan for shrinking their balance sheet bond holdings in coming months, as they had been planning to do.“The question now really is how the invasion of Ukraine, the ongoing war, the response from nations around the world — including sanctions — may have changed that expectation,” Mr. Powell said. “It’s too soon to say for sure, but for now I would say that we will proceed carefully along the lines of that plan.”Mr. Powell emphasized that flexibility was critical, because it was too soon to know what today’s geopolitical tumult would mean for the American economy.Economists have said the conflict is likely to push up gas and other commodity prices, further elevating inflation — already, oil prices have shot higher. But at the same time, a combination of higher fuel costs and wavering consumer sentiment could be a drag on economic growth. Given the unclear effects on the American economy, Mr. Powell said, the Fed will need to remain “nimble.”The Fed chair and his colleagues must balance the risks that Ukraine poses to both inflation and growth against another pressing reality: Price gains in America had already been coming in high for about a year. Fed policymakers, who are tasked with maintaining stable prices, want to make sure that those quick increases do not become a permanent feature of the economic backdrop.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“The game plan is to prevent recent high inflation outcomes from persisting,” Michael Gapen and his colleagues at Barclays wrote in a research report, summing up the crux of Mr. Powell’s testimony.Prices are increasing at the fastest pace in four decades, picking up by 7.5 percent over the year through January in the closely watched Consumer Price Index and by 6.1 percent in the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index. The central bank aims for 2 percent inflation on average over time. Mr. Powell attributed the stubbornly rapid increases to strong consumer demand, especially for goods, that has “collided” with limited supply.“Admitting that inflation — proclaiming that inflation — is far too high, and that we are committed to using our tools to get it back down, it’s really about very, very high demand,” Mr. Powell said. “It’s a very different kind of inflation story than we’ve had in the past, but it’s one we have to deal with, and we will deal with it.”Mr. Powell said the Fed expected inflation to cool off this year as it raised interest rates, government pandemic relief spending faded and supply constraints cleared up. But officials are also closely monitoring factors that could keep it high.If price gains do not begin to come down in 2022, he said the central bank would be prepared to “move more aggressively” and make a larger-than-usual rate increase. Markets have expected that the Fed could increase rates, which are near zero, by half a percentage points at some meetings.“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” Mr. Powell said.Drivers fueled up last month in Brooklyn. Economists have said the war in Ukraine is likely to push gas and other commodity prices higher.Amir Hamja for The New York TimesHis testimony underscored the tense political and economic moment that confronts the Fed — and policymakers across Washington — as a war rages overseas and inflation dominates headlines and spooks consumers at home.Today’s economy does have many bright spots, which Mr. Powell emphasized: Growth has been stronger than in many other advanced economies, and jobs are plentiful, creating opportunities for workers.“The labor market is extremely tight,” Mr. Powell said. He added that “employers are having difficulties filling job openings, an unprecedented number of workers are quitting to take new jobs and wages are rising at their fastest pace in many years.”Inflation F.A.Q.Card 1 of 6What is inflation? More