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While Russia’s invasion of Ukraine is taking a “massive” human toll, the global economic fallout is likely to remain “modest,” according to a recent note from Moody’s Analytics chief economist Mark Zandi, though he predicts the US economy will still feel the effects of higher inflation due to surging energy prices, and said the stock market remains at risk of a further sell-off.


Russia’s invasion of Ukraine—and the subsequent surge in oil prices—is “especially bad timing” for the US economy as it deals with “already painfully high” inflation, Zandi said in a new note on Monday.

Stock prices are down around 10% from all-time highs at the start of the year (a loss of approximately $5 trillion in market capitalization) as investors prepare for higher interest rates, but the Russia-Ukraine conflict could heighten the risk of a sell -off, numerous experts have recently warned.

If inflation expectations start to rise as a result of higher oil and gas prices, the Federal Reserve “will have little choice” but to raise interest rates more aggressively than previously forecast (with investors already anticipating as many as seven 0.25% rate hikes in 2022 ), Zandi argues.

The prospect of more aggressive interest rate hikes also “increase[s] the odds that the economy will stumble,” he says, predicting that if oil prices stay at around $100 per barrel for a “sustained” period of time, that would add as much as 0.5% to year-over-year inflation, which is already at a 40-year high of 7.5%.

That would still only have a “modest impact” on the US economy, according to Zandi, who argues that the most likely scenario is that Russia’s military goes no further than Ukraine and the disruptions to energy markets will be “limited and temporary.”

“The impact on the US economy isn’t likely to be significant,” although higher oil prices will certainly put a dent in consumer confidence, agrees Lindsey Bell, Ally’s chief markets & money strategist, in a recent note.