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    Biden Hits Russia With Broad Sanctions for Putin’s War in Ukraine

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    The penalties will affect Russia’s biggest banks, its weapons industry, its largest energy company and families close to President Vladimir V. Putin. The country’s stock market has plummeted.WASHINGTON — President Biden, vowing to turn President Vladimir V. Putin of Russia into a “pariah,” announced tough new sanctions on Thursday aimed at cutting off Russia’s largest banks and some oligarchs from much of the global financial system and preventing the country from importing American technology critical to its defense, aerospace and maritime industries.The package unveiled by the U.S. government is expected to ripple across companies and households in Russia, where anxiety over Mr. Putin’s full-scale invasion of Ukraine has already begun setting in. The nation’s stock market fell more than 30 percent on Thursday, wiping out a huge amount of wealth.The new U.S. sanctions include harsh penalties against the two largest Russian financial institutions, which together account for more than half of the country’s banking assets.U.S. officials are also barring the export of important American technology to Russia, which could imperil industries there. In addition, the United States will limit the ability of 13 major Russian companies, including Gazprom, the state-owned energy conglomerate, to raise financing in Western capital markets. And it is penalizing families close to Mr. Putin.The sanctions against the financial giants will cause immediate disruptions to Russia’s economy but are manageable over the longer term, analysts said. The technology restrictions, on the other hand, could cripple the ability of certain Russian industries to keep up.“Putin chose this war, and now he and his country will bear the consequences,” Mr. Biden said in remarks from the East Room of the White House. “This is going to impose severe cost on the Russian economy, both immediately and over time.”It was the second round of American sanctions imposed on Russia this week, following a more modest tranche that Mr. Biden announced on Tuesday after Mr. Putin’s government recognized two Russia-backed insurgent enclaves in eastern Ukraine as independent states.It was accompanied by a blizzard of sanctions from other countries announced on Thursday. Britain adopted penalties largely in line with the American ones, with additions such as barring Aeroflot, the Russian airline, from operating in its territory. The European Union announced measures including bans on large bank deposits in the European Union and halts in many technological exports to Russia, including semiconductors. Japan and Australia also unveiled various sanctions.One question in the days and weeks ahead is whether the United States and its European allies can stay in lock step on Russia’s actions, as they claim they will. Secretary of State Antony J. Blinken spoke on both Wednesday and Thursday with the European Union’s top diplomat, Josep Borrell Fontelles, a sign of the intense efforts to coordinate a joint response.The new suite of sanctions from Washington includes some of the tougher penalties that U.S. officials had said were being considered. There had been debate about whether constricting the operations of Russia’s biggest banks and other large companies would cause too much pain to ordinary Russians and to citizens in other countries.Russia has a $1.5 trillion economy, the world’s 11th-largest. The global economy remains precarious at the start of the third year of the pandemic, and many governments are grappling with the highest inflation rates in decades. The price of crude oil has been surging this week because of Mr. Putin’s actions.“I know this is hard, and that Americans are already hurting,” Mr. Biden said on Thursday. “I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me.”But he added that Mr. Putin’s aggression could not go unanswered. “If it did, the consequences for America would be much worse,” he said. “America stands up to bullies. We stand up for freedom. This is who we are.”Residents lined up at a bus station in Kyiv, Ukraine’s capital, on Thursday.Emile Ducke for The New York TimesDaleep Singh, the deputy national security adviser for international economics, told reporters that over time, the sanctions would “translate into higher inflation, higher interest rates, lower purchasing power, lower investment, lower productive capacity, lower growth and lower living standards in Russia.”But it is unclear whether the sanctions will compel Mr. Putin to halt his offensive, in which dozens of Ukrainian soldiers and civilians have already been killed, according to Ukrainian officials. If Mr. Putin pushes forward, then the sanctions will serve as a punishment, Mr. Blinken has said.Some analysts are skeptical that the pain of the sanctions will break through to Mr. Putin, who has isolated himself during the pandemic, even from some of his close advisers.Alexander Gabuev, a scholar at the Carnegie Moscow Center, said the Russian leader and the top officials around him had adopted a bunker mentality, understanding that their lives and wealth depend on their status at home, not within Western nations. They also see themselves as being on the frontline of an ideological contest with the United States and its allies, he said.Furthermore, the Russian government adopted fiscal policies to shield the country’s economy after the United States and Europe imposed sanctions in 2014 following Mr. Putin’s first invasion of Ukraine, and some top security officials and oligarchs have profited off the changes.Edward Fishman, who oversaw sanctions policy at the State Department after Russia annexed Crimea in 2014, said he was surprised at the breadth of the new U.S. sanctions beyond the financial and technology sectors. He said the measures limiting access to capital markets for Russian state-owned enterprises in industries as varied as mining, metals, telecommunications and transportation “cut across the commanding heights of the Russian economy.”Even as Russia’s stock market plunged and the ruble fell to a record low against the dollar, the country may avoid all-out financial panic. Sergey Aleksashenko, a former first deputy chairman of the Central Bank of Russia and former chairman of Merrill Lynch Russia, said the financial measures were likely to inflict serious but ultimately bearable pain.“They will be able to manage what is related to the financial sector,” Mr. Aleksashenko said. “Maybe it will be complicated, maybe it will be expensive — but it’s doable.”More damaging, albeit over a longer term, Mr. Aleksashenko said, would be the new technology export controls.The export controls imposed by the Commerce Department are aimed at severing the supply of advanced technologies to Russia, such as semiconductors, computers, lasers and telecommunications equipment.The measures are expected to stop direct technological exports from American companies to Russia, potentially hobbling the Russian defense, aerospace and shipping industries, among others. They also go beyond previous sanctions issued by the U.S. government by placing new export limits on products that are manufactured outside the United States but use American equipment or technology.The administration said the measures, taken in concert with allies, would restrict more than $50 billion of key inputs to Russia. The country imported $247 billion of products in 2019, according to the World Bank.“This is a massive set of technology controls,” said Emily Kilcrease, a senior fellow at the Center for a New American Security.Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? More

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    Federal Reserve Isn't Likely to Change Course After Ukraine Invasion

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    Federal Reserve officials are turning a wary eye to Russia’s invasion of Ukraine, though several have signaled in recent days that geopolitical tensions are unlikely to keep them from pulling back their support for the U.S. economy when the job market is booming and prices are climbing rapidly.Stock indexes are swooning, and the prices of key commodities — including oil and gas — have risen sharply and could continue to rise as Russia, a major producer, responds to American and European sanctions.That makes the invasion a complicated risk for the Fed: On one hand, its fallout is likely to further push up price inflation, which is already running at its fastest pace in 40 years. On the other, it could weigh on growth if stock prices continue to plummet and nervous consumers in Europe and the United States pull back from spending.The magnitude of the potential economic hit is far from certain, and for now, central bank officials have signaled that they will remain on track to raise interest rates from near zero in a series of increases starting next month, a policy path that will make borrowing money more expensive and cool down the economy.Loretta Mester, president of the Federal Reserve Bank of Cleveland, said during a speech on Thursday that she still expected it “will be appropriate to move the funds rate up in March and follow with further increases in the coming months.”But she noted that the invasion could inform how quickly the Fed moved over a longer time frame.“The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the U.S. will also be a consideration in determining the appropriate pace at which to remove accommodation,” Ms. Mester said.Her comments were in line with those that many of her colleagues have made this week, including on Thursday after the invasion: Central bankers are monitoring the situation, but with inflation rapid and likely to head higher yet, they are not preparing to cancel their plans to pull back economic support.“I see the geopolitical situation, unless it would deteriorate substantially, as part of the larger uncertainty that we face in the United States and our U.S. economy,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said Wednesday at an event hosted by the Los Angeles World Affairs Council. “We’ll have to navigate that as we go forward.”But Ms. Daly said she did not “see anything right now” that would disrupt the Fed’s plan to lift interest rates.Thomas Barkin, president of the Federal Reserve Bank of Richmond, said during an appearance Thursday that “time will tell” if the policy path needed to adjust. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said during a separate speech on Thursday that it was not his baseline expectation that the Ukraine conflict would affect the timing of the central bank’s first rate increase.Even if it is not enough to shake the Fed from its course, some analysts are warning that the fallout of the conflict could be meaningful.“Normally geopolitical crises ultimately turn out to be a fade for financial markets and a buying opportunity for investors willing to look past the headlines,” Krishna Guha at Evercore ISI wrote in a research note Thursday morning. “We are very wary of taking that line today.”Mr. Guha noted that the invasion could disrupt the post-Cold War world order and warned that the jump in energy prices and fallout from sanctions “will complicate the ability of central banks on both sides of the Atlantic to engineer a soft landing from the pandemic inflation surge.”Economists have been warning that a “soft landing” — in which central banks guide the economy onto a sustainable path without causing a recession — might be difficult to achieve when prices have taken off and monetary policies across much of Europe and North America may need to readjust substantially.“The shock of war adds to the enormous challenges facing central banks worldwide,” Isabel Schnabel, an executive board member at the European Central Bank, said during a Bank of England event on Thursday. She added that policymakers were monitoring the situation in Ukraine “very closely.”Inflation is high around much of the world, and though it is slightly less pronounced in Europe, and E.C.B. policymakers are reacting more slowly to it than some of their global counterparts, recent high readings there have prompted some officials to edge toward policy changes.In America, the Fed has sometimes reacted to global problems by cutting borrowing costs, making money cheaper and easier to obtain, rather than by lifting interest rates and making credit conditions tighter. But economists said this time was likely to be different.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    Ukraine Crisis: What Happens Next for the Rest of the World?

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    Europe faces a new refugee crisis, and harsh economic penalties to punish Russia are expected to reverberate worldwide.WASHINGTON — Much of the world woke up on Thursday to the specter of an all-out war in Europe after President Vladimir V. Putin of Russia ordered his troops to invade Ukraine. That left millions of people — in Ukraine and Eastern Europe, but also in the United States and elsewhere — wondering how the conflict would affect their lives.At least 40 Ukrainian solders were reported killed in the hours after the invasion, with estimates of tens of thousands of deaths over the course of the conflict. But beyond the anticipated bloodshed, economic penalties to punish Russia will reverberate worldwide.Rising energy costs and potentially slowing supply chains will take their toll on consumers. Russian cyberattacks could cripple electronic infrastructure. A new refugee crisis will require international assistance. And an era of relative calm in the West that has pervaded since the end of the Cold War might be coming to a close.Here is what might happen next on the military, economic and diplomatic fronts.More military forces head to NATO’s eastern borders.Many of the U.S. troops who arrived in Poland this month have been working with Polish forces to set up processing centers to help people fleeing Ukraine.Czarek Sokolowski/Associated PressNATO announced on Thursday that it was sending reinforcements to its eastern flank, joining some 6,500 U.S. troops the Pentagon has already dispatched to Eastern Europe and the Baltics.“We are deploying additional defensive land and air forces to the eastern part of the alliance, as well as additional maritime assets,” NATO said in a statement. “We have increased the readiness of our forces to respond to all contingencies.”The Pentagon is also repositioning about 1,000 troops in Europe. About 800 U.S. troops are moving to the Baltics from Italy; 20 Apache helicopters are heading to the Baltics from Germany, and 12 Apaches are going to Poland from Greece. Eight F-35 strike fighters are heading to Lithuania, Estonia and Romania from Germany, the Pentagon said.In addition, U.S. Army troops, including those from the 82nd and 101st Airborne divisions, are preparing to move closer to Poland’s border with Ukraine to help process people fleeing the country, an Army spokesman said on Thursday.Many of the 5,500 troops from the 18th Airborne Corps who arrived in Poland this month have been working with the State Department and Polish forces to set up three processing centers near the border to help deal with tens of thousands of people, including Americans, who are expected to flee Ukraine.In Jasionka, Poland, an indoor arena has been outfitted with bunk beds and supplies for up to 500 people; U.S. officials say that capacity could be quickly expanded. In Austria, Chancellor Karl Nehammer said on Wednesday that he was prepared to accept refugees. The State Department and the U.S. Agency for International Development are funding relief organizations that are currently providing food, water, shelter and emergency health care to people in the region who have fled to escape the violence.In the days to come, the C.I.A. will assess what kind of assistance it can provide to Ukraine. If a Ukrainian resistance develops in parts of the country that Russia seeks to control, the agency could secretly supply partisan forces with intelligence and, potentially, armaments.“We need to support the resistance to the invasion and the occupation in all ways possible,” said Mick Mulroy, a former C.I.A. paramilitary officer and senior Pentagon official in the Trump administration. “Our special operations and intelligence assets with an extensive knowledge base from 20 years of fighting insurgencies should be put to immediate use.”‘Severe’ sanctions from the U.S. and Europe.The Treasury Department is likely to put one or more Russian state-owned banks on the agency’s list for the harshest sanctions.Natalia Kolesnikova/Agence France-Presse — Getty ImagesPresident Biden on Thursday plans to announce “severe sanctions” against Russia to try to deter Moscow from carrying out further violence in Ukraine and to punish it for its actions, U.S. officials said.The next set of economic sanctions is expected to be much harsher than what U.S. officials had described as a first tranche that was imposed on Monday and Tuesday. Mr. Biden is likely to order the Treasury Department to put one or more large Russian state-owned banks on the agency’s list for the harshest sanctions, known as the S.D.N. list. That would cut off the banks from commerce and exchanges with much of the world and affect many other Russian business operations.The Biden administration said on Tuesday that it was imposing that kind of sanctions on two banks, VEB and PSB, but those are policy banks with no retail operations in Russia.Administration officials have studied how sanctions would affect each of the big banks, including Sberbank and VTB, Russia’s two largest banks. Sberbank has about a third of the assets in the country’s banking sector, and VTB has more than 15 percent. Some experts are skeptical that the administration would put those two banks on the S.D.N. list for fear of the consequences for the Russian and global economies. For now, U.S. officials are not ready to cut off all Russian banks from Swift, the important Belgian money transfer system used by more than 11,000 financial institutions worldwide.The Treasury Department has other sanctions lists that would impose costs while inflicting less widespread suffering. For example, it could put a bank on a list that prevents it from doing any transactions involving dollars. Many international commercial transactions are done in U.S. dollars, the currency that underpins the global economy.The Treasury Department is also expected to put more Russian officials, businesspeople and companies on the sanctions lists.By Thursday afternoon in Russia, the nation’s stock market had fallen nearly 40 percent.The Commerce Department has been making plans to restrict the export of certain American technologies to Russia, a tactic that the Trump administration used to hobble Huawei, the Chinese telecommunications company. The controls would damage the supply chain for some Russian sectors. U.S. officials said their targets included the defense industry and the oil and gas industry.European officials are expected to announce sanctions similar to many of the ones planned by the United States, as they did this week. However, they have been more wary of imposing the harshest sanctions because of the continent’s robust trade with Russia.Although Mr. Biden has said he will contemplate any possible sanctions, U.S. officials for now do not plan big disruptions to Russia’s energy exports, which are the pillar of the country’s economy. Europe relies on the products, and surging oil prices worldwide would cause greater inflation and more problems for politicians. However, Germany announces this week that it would not certify Nord Stream 2, a new natural gas pipeline that connects Russia and Western Europe. On Wednesday Mr. Biden announced sanctions on a subsidiary of Gazprom, the large Russian energy company, which built the pipeline and had planned to operate it.Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? More

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    White House Prepares Curbs on Russia’s Access to U.S. Technology

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    Biden administration officials have warned Russia that it could face further restrictions on technology that is critical to its economy and military.The Biden administration warned on Wednesday that it had prepared additional measures aimed at cutting off Russia from advanced technology critical to its economy and military in the event of further aggression by President Vladimir V. Putin toward Ukraine.The United States on Tuesday announced sanctions on two Russian banks and curbs on Russia’s sovereign debt, effectively isolating the country from Western financing. President Biden also announced further sanctions on the Nord Stream 2 natural gas pipeline and its corporate officers.Export controls could ratchet up the pressure on Russia by preventing the country from obtaining semiconductors and other advanced technology used to power Russia’s aerospace, military and tech industries.“If he chooses to invade, what we’re telling him very directly is that we’re going to cut that off, we’re going to cut him off from Western technology that’s critical to advancing his military, cut him off from Western financial resources that will be critical to feeding his economy and also to enriching himself,” Wally Adeyemo, the deputy Treasury secretary, said on CNBC on Wednesday.The Biden administration has not clarified what specific restrictions it would impose on the products Russia imports. But the actions and statements of administration officials suggest they could repurpose a novel measure that the Trump administration turned to to cripple the business of Huawei, a Chinese telecom company, in 2020, export control specialists said.The tool, called the foreign direct product rule, allows U.S. officials to block more than just exports from the United States to Russia, which totaled just $4.9 billion in 2020. It also allows American officials to restrict exports to Russia from any country in the world if they use American technology, including software or machinery.Companies can seek licenses to sidestep the restrictions but they are likely to be denied.Daleep Singh, the deputy national security adviser, said on Friday that the administration was “converging on the final package” of sanctions and export controls, and suggested that those controls would target tech products.“We produce the most sophisticated technological inputs across a range of foundational technologies — A.I., quantum, biotech, hypersonic flight, robotics,” Mr. Singh said. “As we and our partners move in lock step to deny these critical technology inputs to Russia’s economy, Putin’s desire to diversify outside of oil and gas — which is two-thirds of his export revenue, half of his budget revenues — that will be denied.”“He’s spoken many times about a desire for an aerospace sector, a defense sector, an I.T. sector,” Mr. Singh said of Mr. Putin. “Without these critical technology inputs, there is no path to realizing those ambitions.”Kevin Wolf, a partner in international trade at Akin Gump who worked in export controls under the Obama administration, said the White House could tailor its use of export controls to target certain strategic sectors, for example companies in the aerospace or maritime industry, while bypassing products used by the Russian populace, like washing machines.“They’re making it clear they’re not trying to take action that harms ordinary Russians,” Mr. Wolf said.Andy Shoyer, co-lead of global arbitration, trade and advocacy for Sidley Austin, said the restrictions appeared likely to focus on semiconductors and semiconductor equipment. The novel export controls that the United States wielded against Huawei have a powerful reach when it comes to semiconductors, since even chips made abroad are mostly manufactured and tested using machinery based on American designs, he said.“It’s not just what’s physically exported from the U.S.,” Mr. Shoyer said. “It could encompass a substantial amount of production, because so much of the semiconductor industry relies on U.S. technology.”The global semiconductor industry, which has been roiled by shortages and supply chain disruptions throughout the pandemic, could face more disruptions given Ukraine’s role in the semiconductor supply chain.The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

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    What Russia's Conflict in Ukraine Means for the U.S. Economy

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    Russia’s threatened invasion of Ukraine could have economic repercussions globally and in the United States, ramping up uncertainty, roiling commodity markets and potentially pushing up inflation as gas and food prices rise around the world.Russia is a major producer of oil and natural gas, and the brewing geopolitical conflict has sent prices of both sharply higher in recent weeks. It is also the world’s largest wheat exporter, and is a major food supplier to Europe.The United States imports relatively little directly from Russia, but a commodities crunch caused by a conflict could have knock-on effects that at least temporarily drive up prices for raw materials and finished goods when much of the world, including the United States, is experiencing rapid inflation.Global unrest could also spook American consumers, prompting them to cut back on spending and other economic activity. If the slowdown were to become severe, it could make it harder for the Federal Reserve, which is planning to raise interest rates in March, to decide how quickly and how aggressively to increase borrowing costs. Central bankers noted in minutes from their most recent meeting that geopolitical risks “could cause increases in global energy prices or exacerbate global supply shortages,” but also that they were a risk to the outlook for growth.The magnitude of the potential economic fallout is unclear, because the scope and scale of the conflict remain anything but certain. But a foreign conflict could further delay a return to normalcy after two years in which the coronavirus pandemic has buffeted both the global and U.S. economies. Tension between Russia and Ukraine is escalating when American consumers are already contending with quickly rising prices, businesses are trying to navigate roiled supply chains and people report feeling pessimistic about their financial outlooks despite strong economic growth.“The level of economic uncertainty is going to rise, which is going to be negative for households and firms,” said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics. He noted that the effect would be felt most acutely in Europe and to a lesser degree in the United States.A major and immediate economic implication of a showdown in Eastern Europe ties back to oil and gas. Russia produces 10 million barrels of oil a day, roughly 10 percent of global demand, and is Europe’s largest supplier of natural gas, which is used to fuel power plants and provide heat to homes and businesses.The United States imports comparatively little Russian oil, but energy commodity markets are global, meaning a change in prices in one part of the world influences how much people pay for energy elsewhere.It is unclear how much a conflict would push up prices, but energy markets have already been jittery — and fuel prices have risen sharply — on the prospect of an invasion.If oil increases to $120 per barrel by the end of February, past the $95 mark it hovered around last week, inflation as measured by the Consumer Price Index could climb close to 9 percent in the next couple months, instead of a currently projected peak of a little below 8 percent, said Alan Detmeister, an economist at UBS who formerly led the prices and wages section at the Fed.“It becomes a question of: How long do oil prices, natural gas wholesale prices stay elevated?” he said. “That’s anybody’s guess.”The $120-a-barrel mark for oil is a reasonable estimate of how high prices could go, said Patrick De Haan, head of petroleum analysis at GasBuddy. That would translate to roughly $4 per gallon at the pump on average, he said. It might be difficult to determine how much of the change in energy prices is attributable to the budding conflict. Omair Sharif at Inflation Insights noted that oil and gas prices had already been going up this year.“I don’t know when you want to start the clock on Ukraine becoming a major headline,” Mr. Sharif said. Plus, from an American inflation perspective, how much the conflict matters “all depends on how much the United States gets involved.”Oil may be the major story when it comes to the inflationary effects of a Russian conflict, but it is not the only one. Ukraine is also a significant producer of uranium, titanium, iron ore, steel and ammonia, and a major source of Europe’s arable land.Trucks loaded with wheat at the port. Russia and Ukraine together make up nearly 30 percent of global wheat exports.Brendan Hoffman for The New York TimesChristian Bogmans, an economist at the International Monetary Fund, said a conflict in Ukraine could further inflate global food prices, which were set to stabilize after skyrocketing last year.Russia and Ukraine together are responsible for nearly 30 percent of global wheat exports, while Ukraine alone accounts for more than 15 percent of global corn exports, he said. And many of Ukraine’s growing regions for wheat and corn are near the Russian border.The rising price of gas and fertilizer, as well as droughts and adverse weather in some regions, like the Dakotas, had already helped to push up the global price of wheat and other commodities. Ukraine is also a significant producer of barley and vegetable oil, which goes into many packaged foods.“In case of a conflict, production might be interrupted, and shipping may be affected as well,” Mr. Bogmans said. If other countries impose sanctions on Russian food items, that could further limit global supplies and inflate prices, he said.But because food costs make up a small portion of inflation, that may not matter as much to overall price data, Mr. Detmeister at UBS said. It is also hard to guess exactly how import prices would shape up because of the potential for currency movements.The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

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    Russia-Ukraine Crisis Troubles the Stock Market

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    Whether you call it a correction or a panic attack, a stock market that was already becoming shaky has been roiled by Russia’s hostilities toward Ukraine.The U.S. stock market has been stumbling since the beginning of the year. Now, Russia’s escalating conflict with Ukraine is adding considerably to the market’s problems.After President Vladimir V. Putin of Russia ordered troops to enter two separatist-controlled enclaves in Ukraine, the S&P 500, which often serves as a proxy for the U.S. stock market, also crossed a notable threshold.On Tuesday, the S&P 500 fell to 4,304.76, down 1.01 percent for the day. That wasn’t much of a loss, but it nonetheless represented a notable milestone. It brought the stock market down 10.3 percent from its most recent peak on Jan. 3.On Wednesday, the index dropped another 1.84 percent, bringing its losses from the record to 11.9 percent.In Wall Street jargon, that meant the S&P 500 is in a “correction,” because its losses since Jan. 3 exceeded 10 percent.That 10 percent definition is entirely arbitrary and the subject of many quibbles, but this much is clear: A correction is not a good thing.“It’s an early warning indicator that tells you the market isn’t heading in the direction you want it to be going in,” said Edward Yardeni, an independent Wall Street economist who has compiled detailed records on modern stock market history. “A 10 percent decline isn’t that bad in itself, necessarily, but if the market keeps heading down, the next thing you know, you’re down 20 percent and then by common agreement you’re in a bear market, and, maybe, worrying about a recession.”

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    Recent S&P 500 Corrections
    Note: Bear markets are highlighted in red. The low point of the correction from the peak on Jan. 3, 2022, has yet to be determined. Source: Yardeni ResearchBy The New York TimesWhat makes the market decline disconcerting is that an escalating geopolitical conflict in Eastern Europe is now being added to the stock market’s ample woes.Stocks have been falling for weeks, for a variety of reasons. Concerns about the prospect of rising interest rates and generally tighter monetary policy from the Federal Reserve are at the top of my personal list.The Fed is, perhaps belatedly, planning at its meeting on March 15-16 to start increasing its benchmark funds rate from its current near-zero level, and then to begin reducing its $8.9 trillion balance sheet. All that is intended to mitigate the inflation that is running at an annual rate of 7.5 percent, a 40-year high.In addition, the death, illness and inconvenience caused by the coronavirus pandemic have had myriad pernicious effects. The labor force in the United States is smaller than it would be otherwise, and the economy’s service sector hasn’t fully rebounded. The pandemic has also caused supply chain bottlenecks that have held back sales and production and increased the prices of important products as varied as automobiles and kitchen appliances.Many publicly traded companies are circumventing these problems and passing the associated costs on to consumers, but their ability to keep doing so, while generating the profits that fuel the stock market, is questionable.The Russia-Ukraine crisis threatens to make matters worse for the economy and the markets. Russia produces important commodities, like palladium, which is needed in the catalytic converters of gasoline-powered automobiles, and whose prices have contributed to the high inflation in the United States.The anticipation of interruptions in commodity supplies has increased prices in futures markets, particularly for oil and natural gas, all of which could go much higher if the Ukraine crisis intensifies and if Western sanctions begin to bite.For those who remember the 1970s and early 1980s, an era of soaring inflation and multiple recessions caused in part by a geopolitical shift and two oil shocks, the possibility of a 2020s parallel is deeply disturbing.So is the fact that Russia is a nuclear power engaging in aggressive action against an independent country that is supported by NATO. The possibility that the conflict could be the start of a new Cold War, or something even worse, can’t be totally dismissed.That said, for investors, it’s worth remembering that since the stock market hit bottom in March 2020, the S&P 500 rose 114.4 percent through Jan. 3. Compared with that stupendous increase, the market’s decline since then has been inconsequential.S&P 500Since the beginning of the coronavirus pandemic

    Source: RefinitivBy The New York TimesWhat’s more, although just about everyone who closely follows the stock market agrees that it has had a correction, there is no agreement on when it took place. Laszlo Birinyi, who began analyzing the market with Salomon Brothers back in 1976, says a correction happens whenever the market crosses the 10 percent border, whether it’s at the end of the trading day or in the middle of it.That’s why Mr. Birinyi, who heads his own independent stock market research firm, Birinyi Associates, in Westport, Conn., says a market correction occurred on Jan. 24, not on Tuesday. The market at one point on Jan. 24 dropped as far as 12 percent below its close on Jan. 3 before rebounding smartly. “The psychology of the market, the mood, shifted then,” Mr. Birinyi said. “People were panicky until then — and then they weren’t.”The Ukraine Crisis’s Effect on the Global EconomyCard 1 of 6A rising concern. More

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    Russian Conflict in Ukraine is Reshaping the Climate Debate

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    Energy security has gained prominence while the conflict in Ukraine raises concerns over the possible interruption in the supply of oil and natural gas.It was only three months ago that world leaders met at the Glasgow climate summit and made ambitious pledges to reduce fossil fuel use. The perils of a warming planet are no less calamitous now, but the debate about the critically important transition to renewable energy has taken a back seat to energy security as Russia — Europe’s largest energy supplier — threatens to start a major confrontation with the West over Ukraine while oil prices are climbing toward $100 a barrel.For more than a decade, policy discussions in Europe and beyond about cutting back on gas, oil and coal emphasized safety and the environment, at the expense of financial and economic considerations, said Lucia van Geuns, a strategic energy adviser at the Hague Center for Strategic Studies. Now, it’s the reverse.“Gas prices became very high, and all of a sudden security of supply and price became the main subject of public debate,” she said.The renewed emphasis on energy independence and national security may encourage policymakers to backslide on efforts to decrease the use of fossil fuels that pump deadly greenhouse gases into the atmosphere.Already, skyrocketing prices have spurred additional production and consumption of fuels that contribute to global warming. Coal imports to the European Union in January rose more than 56 percent from the previous year.In Britain, the Coal Authority gave a mine in Wales permission last month to increase output by 40 million tons over the next two decades. In Australia, there are plans to open or expand more coking coal mines. And China, which has traditionally made energy security a priority, has further stepped up its coal production and approved three new billion-dollar coal mines this week.“Get your rig count up,” Jennifer Granholm, the U.S. energy secretary, said in December, urging American oil producers to raise their output. Shale companies in Oklahoma, Colorado and other states are looking to resurrect drilling that had ceased because there is suddenly money to be made. And this month, Exxon Mobil announced plans to increase spending on new oil wells and other projects.A coal-fired power station in Gelsenkirchen, Germany, in January.Martin Meissner/Associated PressIan Goldin, a professor of globalization and development at the University of Oxford, warned that high energy prices could lead to more exploration of traditional fossil fuels. “Governments will want to deprioritize renewables and sustainables, which would be exactly the wrong response,” he said.Europe’s transition to sustainable energy has always been an intricate calculus, requiring it to back away from the dirtiest fossil fuel like coal, while still working with gas and oil producers to power homes, cars and factories until better alternatives are available.For Germany, dependency on Russian gas has been an integral part of its environmental blueprint for many years. Plans for the first direct pipeline between the two countries, Nord Stream 1, started in 1997. A leader in the push to reduce carbon emissions, Berlin has moved to shutter coal mines and nuclear power plants, after the 2011 disaster at the Fukushima nuclear plant in Japan. The idea was that Russian gas would supply the needed fuel during the yearslong transition to cleaner energy sources. Two-thirds of the gas Germany burned last year came from Russia.Future plans called for even more gas to be delivered through Nord Stream 2, a new 746-mile pipeline under the Baltic Sea that directly links Russia to northeastern Germany.On Tuesday, after President Vladimir V. Putin of Russia recognized two breakaway republics in Ukraine and mobilized forces, Chancellor Olaf Scholz of Germany halted final regulatory review of the $11 billion pipeline, which was completed last year.The Nord Stream 2 pipeline was set to deliver Russian gas to Lubmin, Germany.Stefan Sauer/picture alliance via Getty Images“I don’t think the threat from Russia is outweighing the threat of climate change, and I don’t see coal mines opening up across Europe,” said James Nixey, director of the Russia-Eurasia program at Chatham House, a research organization in London.Certainly, the path of energy transition has never been clear. Five climate summits have taken place over the past 30 years, and progress has always fallen short. This latest setback may just be the latest in a long series of halfway measures and setbacks.Still, without a more comprehensive strategy to wean itself off gas, Europe won’t be able to accomplish its goal of reducing emissions 55 percent by 2030 compared with 1990 levels, or to reach the Glasgow summit’s target of cutting net greenhouse gases to zero by 2050.As Mr. Nixey acknowledged, “this debate is changing” as leaders are forced to acknowledge the downsides of dependency on Russian energy.Even in Germany, where the progressive Greens have gained a more influential voice in the government, there has been a shift in tone.This month, Robert Habeck, Germany’s new minister for the economy and climate change and a member of the Greens, said events had underscored the need to diversify supplies. “We need to act here and secure ourselves better,” he said. “If we don’t, we will become a pawn in the game.”Energy prices started to climb before Mr. Putin began massing troops on Ukraine’s eastern border, as countries emerged from pandemic closures and demand shot up.But as Mr. Putin moved aggressively against Ukraine and energy prices soared further, the political and strategic vulnerabilities presented by Russia’s control of so much of Europe’s supply took center stage.“Europe is quite dependent on Russian gas and oil, and this is unsustainable,” said Sarah E. Mendelson, the head of Heinz College in Washington. She added that the United States and its European allies had not focused enough on energy independence in recent years.Overall, Europe gets more than a third of its natural gas and 25 percent of its oil from Russia. Deliveries have slowed significantly in recent months, while reserves in Europe have fallen to just 31 percent of capacity.Mateusz Garus, a blacksmith at a coal mine in Poland. “We will destroy the power sector,” he said, “and we will be dependent on others like Russia.”Maciek Nabrdalik for The New York TimesFor critics of the European Union’s climate policies, the sudden focus away from greenhouse gas emissions and on existing fuel reserves is validating.Arkadiusz Siekaniec, vice president of the Trade Union of Miners in Poland, has long argued that the European Union’s push to end coal production on the continent was folly. But now he hopes that others may come around to his point of view.The climate policy “is a suicidal mission” that could leave the entire region overly dependent on Russian fuel, Mr. Siekaniec said last week as American troops landed in his country. “It threatens the economy as well as the citizens of Europe and Poland.”For Mateusz Garus, a blacksmith at Jankowice, a coal mine in Upper Silesia, the heart of coal country, politics and not climate change are driving policy. “We will destroy the power sector,” he said, “and we will be dependent on others like Russia.” More

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    Will Biden’s Sanctions Halt a Russian Invasion of Ukraine?

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    President Vladimir V. Putin has learned from earlier U.S.-led sanctions, and his allies could benefit from a more isolated Russia.WASHINGTON — When the Obama administration imposed sanctions on Russia for invading Ukraine in 2014, American officials were hopeful they would deter President Vladimir V. Putin from further aggression.Some of the officials argue today that the sanctions prevented Mr. Putin from ordering Russian forces beyond where they had halted on the Crimean Peninsula and in the eastern Donbas region. But Mr. Putin held on to Crimea. And on Monday, he ordered more troops into an insurgent-controlled area of eastern Ukraine where thousands of Russian soldiers have been operating and said the Kremlin was recognizing two enclaves as independent states.Now, President Biden, who as vice president helped oversee Ukraine policy in 2014, has to weigh what sanctions might compel Mr. Putin to halt his new offensive, which the White House has judged to be an “invasion.” The White House is taking a step-by-step approach, trying to calibrate each tranche of measures to Mr. Putin’s actions.“I’m going to begin to impose sanctions in response, far beyond the steps we and our allies and partners implemented in 2014,” Mr. Biden said on Tuesday in announcing a new set of sanctions. “And if Russia goes further with this invasion, we stand prepared to go further.”While American officials have studied the effects of sanctions imposed since 2014 and sharpened techniques, Mr. Putin has had years to make his country’s $1.5 trillion economy more insular so that parts of Russia would be shielded from tough penalties. Speaking to reporters on Friday, he boasted that his country had grown more self-sufficient in the face of “illegitimate” Western sanctions, according to Russia’s Tass news service. He added that in the future, it would be “important for us to raise the level of our economic sovereignty.”And perhaps most notably, Mr. Putin and his closest aides and partners in Moscow might not suffer much themselves from sanctions, analysts say.Mr. Putin’s decision on Monday to press ahead with the troop movement suggests that he has concluded that the costs of new sanctions are tolerable, despite U.S. talk of “massive consequences” for his country. Several of his top aides made that point in choreographed speeches to him in a meeting of his Security Council on Monday in Moscow.If Russian officials are firm in that mind-set, the Biden administration might find it has to impose the absolute harshest sanctions — ones that would inflict suffering on many ordinary citizens — or look for a noneconomic option, such as giving greater military aid to an insurgency in Ukraine. Mr. Biden has said he will not send American troops to defend Ukraine.Some of the hard-line nationalist men around Mr. Putin were already on a Treasury Department sanctions list and accept that they and their families will no longer have substantial ties to the United States or Europe for the rest of their lives, said Alexander Gabuev, the chair of the Russia in the Asia-Pacific Program at the Carnegie Moscow Center.“They are the powerful everybodies in today’s Russia,” he said. “There is a lot of posh richness. They’re totally secluded. They’re the kings, and that can be secured in Russia only.”Furthermore, because of their roles in state-owned enterprises and their business ties, they are “the very guys who are directly benefiting from the economy becoming more insulated, more detached from the outside world,” he added.They have also adopted a siege mentality rooted in an ideological belief about the United States and its sanctions policies that Mr. Putin regularly pushes. “He says, ‘It’s not because of actions I take, but it’s because we’re rising as a power, and the Americans want to punish us for standing up to hegemonism,’” Mr. Gabuev said. “I think that’s genuine. The bulk of my contacts in the government believe that.”The sanctions announced by the United States on Tuesday include penalties against three sons of senior officials close to Mr. Putin and two state-owned banks, as well as further restrictions on Russia’s ability to raise revenue by issuing sovereign debt. The costs are not expected to be felt widely in Russia — the two banks are policy institutions and do not have retail operations — but American officials could eventually announce more painful steps.That announcement followed an executive order issued by Mr. Biden on Monday night that prohibits business dealings between Americans and entities in the Russia-backed eastern enclaves in Ukraine. The Biden administration would also have the authority to impose sanctions on anyone operating in those areas, a U.S. official said.Britain announced Tuesday that it was freezing the assets of five Russian banks and imposing sanctions on three Russian billionaires and certain members of Parliament. And Germany said it was halting certification of the Nord Stream 2 natural gas pipeline that would connect to Russia.A severe economic disruption could test Mr. Putin’s control of his country. But many analysts are skeptical that the United States and its European allies will follow through with the toughest options that they have considered.Sputnik, via Associated PressOfficials from the White House, State Department and Treasury Department have spent weeks coordinating a response with European leaders and major financial institutions and say they are able to act almost immediately as Russia escalates its actions.Some experts say that if the Biden administration follows through on the most severe options that officials have suggested are possible — most notably severing the country’s top banks, including Sberbank and VTB, from transactions with non-Russian entities — Russia could suffer a financial panic that triggers a stock market crash and rapid inflation. The effects would most likely strike not only billionaire oligarchs but also middle-class and lower-income families. Russian enterprises would also be unable to receive payment for energy exports.Besides isolating Russian state-owned banks, the escalatory sanctions that U.S. officials have prepared would also cut off the ability to purchase critical technologies from American companies.If the United States imposes the harshest penalties, “there will be unexpected and unpredictable consequences for global markets,” said Maria Snegovaya, a visiting scholar at George Washington University who co-wrote an Atlantic Council paper on U.S. sanctions on Russia.Edward Fishman, a top State Department sanctions official in the Obama administration, called Mr. Biden’s action on Tuesday a modest first step intended as “a shot across the bow.”Mr. Fishman said the administration’s move against one of the two targeted banks — VEB, the country’s main development bank — was the first time the United States had fully cut off a state-owned Russian financial institution. “I interpret that as a warning that the Biden administration is prepared to cut off other major Russian banks from the U.S. financial system,” Mr. Fishman said.“Biden is giving Putin an opportunity to step away from the brink,” he added. “But he’s also signaling that, if Putin unleashes a full-scale war, the economic costs will be immense.”Sberbank is a possible target of U.S. sanctions. Some experts say that if the Biden administration imposes particularly harsh measures, Russia could suffer a financial panic.Evgenia Novozhenina/ReutersA severe economic disruption could test Mr. Putin’s control of his country. But many analysts are skeptical that the United States and its European allies will follow through with the toughest options that they have considered, as they may be discouraged by fears over collateral damage to their own economies.And no Western officials have even proposed choking the lifeblood of Russia’s economy by cutting off its lucrative energy exports. Experts say that a move against Russian energy revenues would have the biggest impact, but that it would also lead to a precarious political situation for Mr. Biden and other world leaders as oil and gas prices rise in a period of high global inflation.The Russian government has spent years trying to reconfigure its budget and finances so that it can withstand further sanctions, efforts that have been aided by high market prices for oil and gas. It has relatively low debt and relies less on loans from foreign entities than it did before 2014. Most importantly, the central bank has accumulated foreign currency reserves of $631 billion, the fourth-largest such reserve in the world.Some important Russian state-owned enterprises and private companies have actually benefited from U.S. sanctions. Kremlin policies aimed at replacing Western imports with Russian and non-Western products wind up raising the profits of those businesses. And some of Mr. Putin’s allies and their families have done well under the initiatives. One example is Dmitry Patrushev, the minister of agriculture, whose family has become wealthier from new agriculture industry policies, Mr. Gabuev said.President Xi Jinping of China, who has been strengthening his nation’s ties with Russia, could help Mr. Putin get around some of the sanctions or bolster Russia’s economy with greater energy purchases. When the two leaders met in Beijing at the start of the Winter Olympics, their governments announced a 30-year contract in which China would purchase gas through a new pipeline running across Siberia. Chinese companies might also be able to fill some of the supply chain gaps created by a stoppage in certain U.S. technology exports to Russia, though those companies are unable to replicate more advanced American products.Chinese leaders would probably be careful about having its large state-owned banks continue to do business overtly with any Russian banks that are under U.S. sanctions, but China has ways to keep some transactions hidden.“They’ve developed a lot of e-payment and digital workarounds,” said Daniel Russel, a former assistant secretary of state for East Asian and Pacific affairs and an executive at the Asia Society. “There are all kinds of fairly sophisticated barter systems they’ve been employing. Thirdly, they can hide behind a lot of black market stuff.” More