On 24 February 2022, Russia launched a military invasion on Ukraine. Prices of oil and gas increased sharply, with both major oil benchmarks trading today at above $100, up by more than 40% since the beginning of January. 

During that period, Brent rose to multi-decade highs of nearly $140 a barrel, its highest price since the 2008 financial crisis. It however started falling from the peak thereafter. The United Arab Emirates supported a supply increase, the emergence of US-Iran talks, hopes of Ukraine-Russia peace talks and fears of falling demand from China due to its COVID-19 outbreak. Things got worse when Biden administration further announced a ban on Russian oil imports to the US. 

The market analyst now predicts the oil prices to hit a high of $380 a barrel if Russia responds with cuts to crude oil output. 

All three major US stock indexes finished in negative territory, with the Nasdaq having its largest-ever January-June percentage drop, down 29.5%, while the Dow Jones Industrial Average suffered its biggest first-half percentage plunge since 1962, losing over 15%. The S&P 500 suffered its worst first half in more than half a century, down 20.6%. Forget about the Dotcom crash in 2000, the subprime crash in 2008, and the pandemic in 2020. Remember 1970? It lost 21% in the first half of 1970, during a period of high inflation that the current environment has been compared with. It gained 27% during the last six months of that year. The odds seem good so far for the rest of 2022. The market has already expected a mild recession, and there are signs of inflation slowing down.

The consumer price index rose 8.6% in May from a year ago, the highest increase since December 1981. Excluding volatile food and energy prices, core CPI was up 6%. Markets reacted negatively on fears that the US economy is nearing a recession. Those escalating prices meant workers took another pay cut during the month. Administration put most of the blame for the surge on supply chain issues related to the Covid pandemic, imbalances created by outsized demand for goods over services and the Russian attack on Ukraine.

Following the multi-decade highs inflation report, the Federal Reserve swiftly raise interest rates to slow growth and bring down prices.

Just a month ago, the US Federal Reserve (Fed) announced the most aggressive interest rate increase in nearly 30 years, a super-sized 0.75-percentage-point increase in an all-out battle to drive down surging inflation. It was the first 75-basis-point increase since November 1994. Interest rates are crucial tool to combat inflation. Inflation is driven by strong consumer demand. By raising interest rates, which makes things more expensive, the Fed is hoping to dampen peoples’ willingness to spend money.

Federal Open Market Committee (FOMC) raised the benchmark borrowing rate to a range of 1.5-1.75%, up from zero at the start of the year. And the Fed will continue to raise rates as needed throughout the year if inflation doesn’t abate. Committee members now see the federal funds rate ending the year at 3.4%, up from the 1.9% projection in March.

So, who is the loser here? People who want to buy a home now.

Mortgage lenders move their rates up and down based in part on what they expect the Fed to do. With inflation so bad right now, mortgage rates have been rising. Interest rates on 30-year mortgage loans have nearly doubled during 2022, making homes even more difficult to afford. With the average on the 30-year fixed-rate mortgage at 5.7%, some would-be buyers are spooked by the higher borrowing costs and are putting their plans on hold. A year ago, the rate was 2.72%.