It has been a very volatile month for global financial markets. Concerns about the Russia-Ukraine conflict weighed on equities and government bond yields as energy prices rose. With signs of positive diplomatic developments in Ukraine , equities have since rebounded substantially with most developed-market equities posting positive returns in March. At the same time, government bond yields rose sharply from their lows in early March as central banks adopted a more hawkish tone in response to high inflation. Geopolitical tensions and monetary policy tightening amid sticky inflation are two key issues for investors, both of which have increased risks to the global economy in the near term. In the weeks before the outbreak of conflict, global economic growth appeared to be rebounding from the wobble caused by the Omicron wave at the start of the year. The purchasing managers’ index rose sharply in February, with developed economies forging ahead. Now, however, the crisis is likely to lead to even higher inflation and lower growth for major economies, owing to the rise in commodity prices. On the growth side, higher commodity prices are expected to hit real household income and weigh on consumption. Europe is more vulnerable to higher prices for natural gas , as Russia accounts for 40 per cent of its supply, while around one-third of Russian gas exported to Europe passes through Ukraine. These rising costs will feed into electricity prices. In addition, the Ukraine crisis could lead to weaker consumer and business confidence, which will in turn dampen consumption and investment activity. In fact, signs of weaker sentiment are already visible in the results of the EU’s latest business and consumer survey. Inflation was already proving to be more persistent than expected at the start of this year; the Ukraine crisis is now likely to exacerbate supply constraints and put more pressure on prices. Another concern for investors is the risk of developed economies’ central banks overtightening monetary policy to combat inflation, tipping the economy into recession. This is a major issue for the US, given the higher inflationary pressure compared to other economies. Not only are prices on goods surging due to strong demand and supply constraints, but there is also a broad acceleration in services inflation, including rents, as wage pressures continue to build in the US. After a rate hike of 25 basis points in March, comments by US Federal Reserve chairman Jerome Powell and other officials suggest a more hawkish turn in the central bank’s policy. Powell emphasised the Fed’s commitment to restoring price stability, indicating that it could not simply ignore the commodity price shock caused by the Ukraine crisis, given that inflation was already high and the labour market tight. The comments suggest the strong probability of a larger increase, of 50 basis points, at one or more Fed meetings this year. However, the risk of the Fed raising interest rates into restrictive territory is greater in 2023 than it is this year. Fed’s hawkish inflation turn isn’t necessarily bad news for China’s economy While risks to global growth have increased, there is no need to be too bearish about the outlook. It is important to note the very solid positions of household and corporate balance sheets before the start of the Ukraine crisis. During the pandemic, households in major developed economies built up a lot of savings, which can act as a buffer against a significant downturn in consumption. China’s policy easing should also provide some offset for the drag on growth. China’s policy cycle is moving in the opposite direction to that of other major economies. Since July 2021, Beijing has shifted to a modest easing stance, and a more supportive policy environment can be expected in the coming months. At the National People’s Congress meeting in March, the government set this year’s GDP growth target at “ around 5.5 per cent ”, highlighting policymakers’ commitment to maintaining growth stability. Recent policy actions have also sent pro-growth signals. Following a sharp sell-off in Chinese equities amid growth and regulatory concerns in mid-March, Vice-Premier Liu He reiterated the accommodative policy stance and directly addressed market concerns on the property sector, tech regulation and American depositary receipt stocks. In a coordinated approach, this was followed up with announcements by four other government departments on new policies to support the economy, including the postponement of the property tax trial this year. Volatility may well remain high in the near term as financial markets take time to recalibrate the recent geopolitical and monetary policy developments. However, there is hope for calmer markets in the next few months once we get more clarity on the Ukraine situation, and the inflation and monetary policy outlook. Sylvia Sheng is a global multi-asset strategist at JP Morgan Asset Management