The world is on the cusp of a new economic cycle: how inflation in the U.S. affects markets from Seoul to Paris—and what this means for Ukraine
DVA ANALYTICS • FACT -> MECHANISM -> RISK -> DECISION
When one economy changes the rules for the whole world
Global financial markets are more closely connected than they may seem. Decisions by the U.S. Federal Reserve affect more than just American loans and stock indices. They change the cost of dollar financing, the direction of international capital flows, the appeal of bonds, and the valuation of risky assets in countries around the world.
That is why accelerating inflation in the US reverberates in falling technology stocks in South Korea, rising borrowing costs in Europe, and mounting pressure on emerging markets. And for Ukraine, which is simultaneously fighting its own inflation, maintaining the hryvnia exchange rate, and depending on external financing, the US monetary policy trajectory has very concrete consequences.
But it is important to understand: this is not necessarily the beginning of a new global crisis. It is a signal that financial conditions are changing, and investors, businesses, and governments will have to adapt.
1. FACT — why inflation remains the main problem
Inflation is not simply rising prices in stores. For a central bank, it is important to understand why prices are rising, how persistent the trend is, and whether it is spreading across most sectors of the economy.
US data for September 2026 painted a mixed picture. Headline CPI rose 0.6% month over month and 3.7% year over year—slightly above the expected 3.6%. More than half of the monthly increase came from a 9.1% rise in gasoline prices, while energy prices overall rose 5.2% for the month and 20.4% for the year. Meanwhile, core CPI, which excludes food and energy, rose 0.3% for the month and 2.6% for the year, above the 2.4% forecast. This means price pressures are not limited to an energy shock alone.
Important context: the US labor market is showing signs of cooling. In September, nonfarm payrolls increased by just 29,000, compared with expectations of 90,000, while the unemployment rate reached 4.2%. This creates a difficult trade-off for the Fed: inflation is above target, but the labor market is already showing signs of weakness.
The main takeaway: for the Fed, a single report is not enough; it needs confirmation that inflation is becoming persistent again. So far, the data point to a moderate but inconclusive signal.
1. MECHANISM — how Fed decisions affect the whole world
The Fed sets the target range for the federal funds rate. In September 2026, the regulator raised the rate by 25 basis points to 3.75–4.00%—the first increase since 2023. All 19 FOMC members supported the decision, and most projected another hike by the end of the year.
The transmission mechanism consists of several stages.
First, the cost of money changes. Higher rates make borrowing more expensive and dollar-denominated instruments more attractive compared with risky assets.
Second, capital is reallocated. Investors reduce their holdings of risky assets and increase their share of dollar-denominated instruments. This puts pressure on other countries’ currencies, stock markets, and debt instruments.
Third, debt servicing becomes more expensive. Companies and governments that depend on dollar financing face higher costs.
Fourth, the valuation of future earnings changes. The higher the discount rate, the lower the present value of future cash flows. This is especially painful for technology companies, whose value depends heavily on earnings far into the future.
At the same time, market expectations for the Fed can shift faster than actual decisions. After the Fed chair’s speech in Manila on October 16, the probability of a rate hike at the October 27–28 meeting fell below 15%, down from around 27% before the speech. Goldman Sachs expects the next hike to take place in December.
1. South Korea: why a tech boom does not protect against a sell-off
South Korea plays an important role in global semiconductor supply chains. Its stock market is sensitive to global demand for technology, expectations around artificial intelligence, and the cost of capital.
Two distinct mechanisms are at work here. The first is macroeconomic: higher capital costs change the valuation of future earnings. The second is industry-specific: the market revises its expectations for demand, margins, and the duration of the technology cycle.
The two should not be confused. A fall in technology stocks does not prove that the development of artificial intelligence is stopping. It may mean that previous expectations were too optimistic, or that investors are demanding a lower price for the same prospects. Sharp index movements can also be amplified by automated trading strategies and the closing of leveraged positions.
The risk for investors: a promising industry is not necessarily a promising investment at any price.
1. Oil: the link between geopolitics and inflation
Oil has a dual significance. It is an important energy resource and, at the same time, one of the channels through which inflationary pressures are transmitted. In October 2026, Brent traded near $106–107 per barrel—its highest level since mid-September—amid escalating tensions in the Middle East.
This channel is particularly sensitive for Ukraine. According to the NBU, fuel inflation in Ukraine reached 46.2% year over year in September 2026 due to sharp fluctuations in global petroleum product prices and the consequences of Russian attacks on infrastructure. More expensive oil means more expensive fuel, more expensive logistics, and ultimately more expensive goods for consumers.
If more expensive energy sustains inflation, central banks have less room to cut rates. If consumers also reduce other spending, economic growth slows. This is where the risk of stagflationary pressure emerges. However, stagflation cannot be declared solely on the basis of high oil prices—it is necessary to assess GDP, employment, and broader inflation indicators.
1. France: when debt risk becomes political
The European debt market has its own dynamics. The cost of government borrowing is affected not only by Fed decisions, but also by expectations for ECB policy, economic growth, the budget deficit, and political stability.
One important indicator is the difference between the yields on French and German 10-year bonds. German bonds are traditionally used as the eurozone benchmark. When French bonds offer a noticeably higher yield, this may indicate that investors are demanding additional compensation for France’s risks: high public debt, a persistent deficit, uncertainty around reforms, and political conflicts.
It is important to distinguish between yield levels and credit risk. A higher yield does not automatically mean default. It means that the market is valuing those bonds differently than before. If the government has to borrow at higher rates, the cost of refinancing debt gradually increases, narrowing fiscal space.
1. RISK — is the world really entering a new economic cycle?
The concept of a “new economic cycle” sounds convincing, but should be used with caution. A single surge in inflation or drop in a stock index does not in itself mean a fundamental change in the global economy.
Scenario 1. A controlled slowdown. Inflation gradually declines, growth remains positive, and central banks hold rates without a significant deterioration in employment. Markets recover after a correction.
Scenario 2. A prolonged period of tight policy. Inflation proves more persistent than expected, and rates remain high for longer. Companies face more expensive financing, while investors reassess asset values.
Scenario 3. A stagflationary shock. Energy prices remain high, inflation slows gradually, and economic activity weakens. Central banks face a difficult choice.
The main risk for markets is not necessarily the rate hikes themselves, but the gap between investors’ expectations and central banks’ actual actions. In October 2026, this gap became clear: the market lowered the probability of an October rate hike to less than 15%, while most FOMC members had projected another hike by the end of the year in September.
1. Ukraine: twin pressures from abroad and at home
For Ukraine, the US monetary policy trajectory compounds its own challenges. In September 2026, inflation in Ukraine accelerated to 10.0% year over year, while core inflation reached 8.8%. The NBU directly links this to intensified Russian attacks on production, warehousing, and logistics infrastructure, as well as rising fuel prices.
The hryvnia remains under pressure. The official exchange rate on October 19, 2026, is UAH 44.86 per dollar. In its draft state budget for 2026, the government assumed an average annual exchange rate of UAH 45.6 per dollar. A strong dollar in global markets makes it harder to maintain the exchange rate and increases the cost of imports, directly affecting inflation.
At the same time, Ukraine depends on external financing. Higher costs of dollar borrowing in global markets make any refinancing more expensive. This increases the importance of domestic fiscal discipline and cooperation with international partners.
1. DECISION — three recommendations for three countries
For the US: don’t rush to conclusions, but lay the groundwork.
The Fed finds itself caught between inflation above target and a cooling labor market. The recommendation is not to avoid a rate hike at any cost, but to communicate its reaction function clearly. The market has already shown how sensitive it is to the slightest signals: a single speech by the Fed chair more than halved the probability of an October hike. If the Fed acts decisively but clearly, it will reduce the risk of sharp repricing. If the regulator appears indecisive, inflation expectations may become entrenched, eventually requiring tougher measures later on.
For France: separate the debt problem from the political one.
France’s debt risk is not simply a matter of figures in the budget. It reflects the interaction between financial constraints and the state’s ability to make decisions. The recommendation is to find a politically acceptable but economically credible path to reducing the deficit. Markets are demanding a higher risk premium, and that premium will grow until a clear path to fiscal consolidation emerges. At the same time, it is important not to turn the debate on debt into a tool for political battles, as this only increases uncertainty.
For Ukraine: use this moment to strengthen resilience.
Ukraine cannot influence the Fed’s decisions, but it can reduce its own vulnerability to them. First, maintain cooperation with the IMF and other partners to ensure access to financing on acceptable terms, even during periods of global turbulence. Second, continue policies aimed at lowering inflation expectations, even if some measures are unpopular. Third, develop the domestic debt market to reduce reliance on external borrowing. Finally, it is important to remember that a significant share of Ukrainian inflation has non-monetary causes—the consequences of Russian attacks. This means monetary policy alone cannot solve the problem, but it can avoid making the situation worse.
Conclusion. The era of cheap money will not return under the old rules
The global economy does not function as a set of isolated national systems. Inflation in the US affects rate expectations; rates change the direction of capital flows, and those flows are reflected in stocks, currencies, government bonds, and digital assets.
South Korea demonstrates how vulnerable the technology sector is to a reassessment of future earnings. France illustrates the challenges of managing public debt amid political uncertainty. The energy market reminds us that geopolitical events can complicate the fight against inflation. Ukraine, meanwhile, finds itself at the intersection of all these developments, with its own inflation, exchange rate, and security challenges.
But the main lesson is not that a global crisis is inevitable. It is that financial decisions should account for several possible scenarios, rather than just one desired forecast. For governments, this means managing debt risks. For businesses, it means planning financing more cautiously. For investors, it means assessing assets not only by their growth potential, but also by how they perform when liquidity is expensive.
DVA ANALYTICS — FACT -> MECHANISM -> RISK -> DECISION
Facts show what is happening. Mechanisms explain why it is happening. Risk assessment helps us understand the possible consequences. And decisions should be based not on fear or euphoria, but on verified data and one’s own financial capacity.
DVA — facts without hype.
Not financial advice. Preserving value and time.
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