It’s still unknown how the conflict in Ukraine will impact the Fed’s plans. Although the Ukraine crisis may slow the pace of the increases, there’s no reason to doubt the rises will still occur from March 2022 onwards. Most people now have the question: What now, and what will the knock-on effects be?
On one level, an increase in inflation should mean that a currency loses its value. After all, if you can buy your weekly groceries for $100 one month, but inflation means that the same grocery shop costs $110 a few weeks later, the purchasing power of a single dollar has reduced.
What happens on a macroeconomic scale?Usually, inflation harms a currency relative to the currencies of other nations. Yet this assumes that other currencies haven’t also experienced inflation — and rising prices have practically been a worldwide phenomenon since Covid-19.
A currency’s value relative to others also links to interest rates. When the Fed increases interest rates to control inflation, it may increase the demand for foreign investment since returns become higher. Yet many other aspects influence investment in a country, such as its economic and political stability.
Thanks to the fluctuating value of the Russian rouble over the last few weeks, the US dollar has also been volatile. On Thursday, Feb. 24, it reached its highest value since June 30 2020, and enjoyed the most significant percentage increase since November 2021. Although there have been some recent decreases, the US dollar will likely strengthen over the coming year.