Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

INVESTORS have a choice of things to worry about this week. Covid, inflation and the war in Ukraine are all in focus.

Challenging as it may be knowing how to manage our portfolios in this environment, we should spare a thought for central bankers on either side of the Atlantic. Both have difficult decisions to make this week.

The interest rate dilemma

Jerome Powell, chairman of the Federal Reserve, recently warned Congress that rates may have to rise above neutral to get a grip on inflation that’s set to exceed 8% in March. This week he and the other rate setters at the Fed look certain to deliver the first of several rate hikes this year, with more pencilled in for 2023.

The only question is whether US rates rise by a quarter or half percentage point on Wednesday. The challenge facing the Fed is that inflation is not being caused by a booming economy but by rising energy costs. At the same time as inflation rises, growth is slowing. The Fed needs to tame prices while avoiding a recession. It’s an unenviable task that’s shared by the Bank of England, which is expected to deliver a third rate hike on Thursday.

Inflation here is lower than in the US but at 5.5% in January, price rises are well above the Bank’s 2% target. The question facing the Bank is whether Britain can cope with a borrowing squeeze on top of a heap of other cost increases this spring, from soaring gas bills to dearer petrol and rising national insurance payments.

Check out our one-minute explainer on inflation below.

News from the front

The interest rate question is complicated by the war in Ukraine which, on top of the human cost, is having a huge impact on the global economy. Most important is its influence on the oil price.

Having spiked as high as $140 a barrel when the US threatened to ban Russian oil exports, the cost of Brent has retreated to $107 on hopes for more substantive ceasefire talks. Much will depend on the influence China exerts over Russia following speculation over the weekend that Moscow has requested economic and military assistance from Beijing.

Russia is also expected to have an ongoing influence on the gold price, which last week came within a whisker of the August 2020 all-time high of $2,072.50 an ounce. Sanctions on the Russian central bank mean Moscow is likely to buy all of Russia’s gold output this year. Coupled with rising demand for gold-backed ETFs, Goldman Sachs’s forecast of $2,500 an ounce for the precious metal looks plausible.

And just when you thought it was safe….

The third horseman of the apocalypse for investors today remains Covid. We may have forgotten about the pandemic over here, but in Changchun, a city of 9 million, residents have been banned from leaving their homes except for one person per household every other day to buy groceries. The pandemic is still with us.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

Share this article

Latest articles

Will electric cars get cheaper?

Lithium shortages could make electric car buyers think again.

Becks Nunn

Becks Nunn

Fidelity International

Greencoat UK Wind Investment Trust

Renewable energy trusts the chief beneficiaries of the surge in power prices

Nick Sudbury

Nick Sudbury

Investment writer

Watch: Market News Update - 8 August 2022

In this week’s market update: investors struggle to decide if the glass is ha…

Tom Stevenson

Tom Stevenson

Fidelity International