The key US stock market indices - the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 - ended Thursday with huge losses. The previous trading day was very important from the point of view of geopolitics. The situation in Donbass deteriorated dramatically in the morning when shelling along the entire border with the unrecognized DPR and LPR territories resumed. Thus, there are no signs of a de-escalation of the conflict yet. Rather, such events suggest its escalation. Thus, geopolitical tensions elevated and the US stock market responded to the situation negatively. Notably, the last few rounds of negotiations between the West, Kiev, and Moscow turned out to be unsuccessful. Kiev still stands firm in its position, arguing that each country has the right to independently choose its own development path and join any international organization at its discretion. The West supports Ukraine, noting that Ukrainian membership in NATO is a matter of exclusively Ukraine and NATO. Moscow continues to oppose NATO bases near its borders, saying this could lead to a serious military conflict between the alliance and Russia and trigger World War Three. This issue is quite sensitive. For instance, Russian troops are currently deployed in neighboring Belarus, which is friendly to Moscow. Belarus, in turn, shares borders with such countries as Poland, Lithuania, and Latvia, which are NATO members. Thus, no matter what decision the parties will take, one day the military bases of the United States and the Russian Federation may be located at a distance of 50 km from each other.
In the meantime, markets are wary of deepening tensions, any escalation of the already existing conflict in Eastern Europe, as well as any signs of a possible world war. Against this background, US stock indices collapsed on Thursday. Even the speech of Fed member Loretta Meister failed to support the equity market. She stated that the Fed will take all necessary measures to get inflation under control. It looks like inflation has just accelerated to 2-2.5% and the regulator is going to prevent its further growth. In reality, inflation is already at 7.5%. Thus, it can be concluded that it has long gone out of control. According to Meister, the central bank is considering shrinking its balance sheet, which has ballooned to $9 trillion over the past 2 years. The Fed sees interest rate hikes as the main weapon against inflation. At the same time, Meister made no comments about the pace of Fed interest rate increases or their number this year. Therefore, it can be assumed that not all members of the Federal Open Market Committee support the idea of kicking off the tightening cycle at every meeting in 2022.
