Brian Jacobsen provides perspective on the Russia-Ukraine war and other key topics of the current week—plus, his thoughts about what the week ahead may hold. Here’s his report for the week of March 26–April 1, 2022. Plus: There’s a recap of the first quarter’s key events.

The week that was

Russia-Ukraine update:

  • Actions:
    • At a speech in Warsaw, Poland, President Biden spoke off the cuff and said Putin cannot stay in power. U.S. Secretary of State Blinken said the U.S. is not seeking regime change in Russia. President Biden said he was not articulating a policy, just expressing moral outrage.
    • Russia fired missiles on Lviv, Ukraine, while President Biden was in Warsaw. Lviv is approximately 250 miles from Warsaw.
    • Peace negotiators who attended a meeting in Kyiv became ill, and it is suspected that the Ukrainian side was poisoned, perhaps by hardliners aligned with the Kremlin. Thankfully, the individuals have recovered.
    • Russia announced it will reduce military operations in Kyiv. Russia seems to be focusing its actions more on the Donbas region.
    • Russia handed back to Ukraine the Chernobyl nuclear power plant.
  • Sanctions:
    • President Putin said gas contracts that are not paid in rubles will be canceled. Earlier that same day, Germany and Italy said they received assurances from Putin that gas contracts could still be paid in euros. On Friday, it was clarified that gas payments would have to be made to the Russia-controlled Gazprombank in the currency of the buyer and the bank would convert the payments into rubles.
    • The U.S. levied sanctions against Russian technology companies. The U.S. Treasury added the aerospace, marine, and electronics sectors to a list of sectors it may sanction.
  • Negotiations:
    • In a possible shift in objective, Russia’s Deputy Chief of the General Staff said the focus of Russian forces is to completely liberate Ukraine’s Donbas region. At the outset of Russia’s invasion of Ukraine, Putin said the goal was complete demilitarization and regime change.
    • President Zelensky said Ukraine may be willing to discuss the status of certain areas of Ukraine under Russian control. Zelensky warned his people that it seems like Putin is trying to split Ukraine into two parts, like North and South Korea.
    • A report on Monday said Russia is set to let Ukraine join the European Union, provided Ukraine remains militarily “non-aligned.” At negotiations in Turkey, parties said a meeting between Zelensky and Putin is likely.


  • The yield curve (the relationship between the time to maturity on government bonds and their yields) inverted temporarily on Tuesday, with the yield on a 2-year Treasury exceeding the yield on a 10-year Treasury. Yield curves can invert for a number of reasons, but yield curves—on average—often invert about two years before a recession. Because yields over different horizons incorporate compensation for inflation over those horizons, it’s likely that this inversion might reflect the belief that inflation will be materially lower over the next 10 years relative to over the next 2 years.
  • The Bank of Japan (BOJ) intervened in the Japanese Government Bond (JGB) market. The BOJ has been practicing “yield curve control” (which means the BOJ has been buying very large amounts of JGBs to stimulate the economy), and the 10-year-and-longer portion of the yield curve has gotten a little out of control. The BOJ had said it would purchase an unlimited number of JGBs to push yields lower.
  • February’s inflation rate, as measured by the Personal Consumption Expenditures Price Index, rose to 6.4% year over year. If it weren’t for annoyingly high food and fuel prices, inflation would actually be moderating, which would make the Federal Reserve’s (Fed’s) job a lot easier. Durable goods prices were flat for the month. Services prices moderated their rise to 0.3% per month, from the 0.4% pace they were previously on. Inflation-adjusted spending fell across the board, except for spending on services. There was a surge in spending on food services and accommodations, reflecting a lot of consumer excitement about traveling and eating out.
  • Nonfarm payrolls in the U.S. expanded by 431,000 in March. Previous months’ numbers were revised higher by 95,000. The unemployment rate dropped to 3.6% in March, and wages increased 5.6% year over year. It’s evident in this report that the effects of COVID-19 are going away, as it indicates that fewer people are working remotely and fewer people are letting COVID-19 hold them back from their job searches. If data continue to be this strong between now and the next Fed meeting, the Fed could be comfortable with a rate hike of 50 basis points (bps; 100 bps equal 1.00%) and a rapid runoff of its balance sheet.


  • China’s government imposed a shutdown on Shanghai over the spread of COVID-19. The government shut down half of the city for four days to conduct widespread testing, and then it will shut down the other half for four days for testing.
  • President Biden introduced his budget, which includes a big increase in defense spending. In the budget, President Biden proposed a “billionaires tax” that would impose a minimum 20% income tax on households with more than $100 million in assets. The tax would apply not only to earned income but also to unrealized gains on assets. This proposal may have the same destiny as his previously proposed budgets, which didn’t garner enough Democratic support to go into effect.
  • It was reported that President Biden is considering releasing 1 million barrels of crude oil per day over several months from the U.S.’s Strategic Petroleum Reserve. At the Organization of the Petroleum Exporting Countries’ supply meeting, the cartel agreed to only increase its output by 432,000 barrels per day, which is what it had previously agreed to.
  • President Biden said he will use his powers under the Defense Production Act to boost production of batteries for electric vehicles.

The week to come

The quarter that was

  • The biggest and longest-lasting story for the quarter was Russia’s invasion of Ukraine. The people of Ukraine have valiantly defended their country, forcing Russia to reconsider its objectives with its invasion. Most recently, Russia has shifted to focusing on occupying Ukraine’s Donbas region. Negotiations have been ongoing and seem to now be about keeping Ukraine out of NATO and whether Ukraine should give up any of its sovereign territory. Most of the world has condemned Russia’s actions. Notable exceptions are China and India. The civilized world has united in sanctioning Russia’s government, Russian President Putin, and anyone close to Putin.
  • Churn at the Fed: There were personnel and policy changes at the Fed this past quarter. Chair Powell is technically Interim Fed Chair as he waits for his reconfirmation hearing. President Biden nominated three more officials to the Board of Governors, though one withdrew her nomination. Dallas and Boston are getting new Fed presidents. Despite the personnel churn, the biggest Fed news was about the Fed’s shift in policy. In mid-March, the Fed wrapped up its asset purchase program. At its March 16 meeting, it hiked its policy rate by 25 bps. The messages from Fed officials have been more hawkish, and the market has priced-in rate hikes at every remaining 2022 Fed meeting—with some hikes at larger than 25 bps. To tamp down inflation, the Fed has embraced the market expectations via talk of hiking 50 bps and shrinking its balance sheet as necessary to push inflation lower.
  • High inflation and a strong economy: COVID-19 cases fell throughout the quarter, and services-sector activity started getting a spring in its step as people resumed more “normal” lives. Inflation in February hit 7.9% year over year. The worst is likely yet to come, as food and fuel prices shot higher in March on Russia’s invasion of Ukraine. March’s Consumer Price Index data won’t be released until April. While inflation is high, the labor market is hot. February’s unemployment rate fell to 3.8%. For every person unemployed, there are more than 1.7 job openings. Of course, just because there are job openings and job seekers, it does not mean that the skills and locations match. Retail sales and manufacturing output has been strong. High inflation may eat into consumer purchasing power and increase business costs, but so far it looks like companies have been able to maintain—if not expand—their profit margins in this environment.

Thanks for reading, stay informed!

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