Markets face a bigger problem on the horizon with the Federal Reserve raising interest rates and aggressively tightening monetary policy.

Senate Federal Reserve

The Federal Reserve's battle against inflation is still the most important issue facing markets.

Graeme Jennings/Pool via ASSOCIATED PRESS

The S&P 500 fell into correction territory on Tuesday, after all three major indexes plunged 5% or more in February.

Dan Kemp, chief investment officer for Morningstar Investment Management, says that political risks can cause short-term volatility and can change the market's direction in a flash.

Despite the Russia-Ukraine tensions causing volatility in recent weeks, experts say investors should be more concerned about the Federal Reserve's turn as it looks to fight surging consumer prices.

Sam Stovall, chief investment strategist at CFRA, says that equity markets are more at risk from the war on inflation than from a potential invasion of Ukraine.

While Russia/Ukraine continues to dominate the headlines, the outlook for Fed policy is still the #1 macro issue facing the stock market.

The impact on the U.S. economy isn't likely to be significant, despite the possibility of a Russia-Ukraine war.

Stimulus withdrawal is the most important macro topic in the market, and that is feeding into the geopolitical worries. In the past, stocks could usually rely on easier fiscal and monetary support, but in the present environment no such aid will be forthcoming.

Key Background:

With bond yields spiking this year amid concerns about the Federal Reserve's tightening monetary policy, markets were already under pressure. The S&P 500 fell deeper into correction territory on Wednesday. The tech-laden Nasdaq has plunged 16%, while the blue-chip Dow Jones Industrial Average is down more than 8%.

What To Watch For:

The Russia-Ukraine situation has sent energy prices soaring, which may affect the Federal Reserve's planned rate hikes. With the price of oil and gasoline rising in recent weeks, a further surge could severely dent U.S. consumer confidence and make inflation worse, economists warn. It will probably add 30 or 40 cents to the price of a gallon of gas. The Fed's efforts to reign in inflation and get back to full employment would be complicated by such an increase.

Contra:

Other economists warn that higher energy prices could cause a "polar vortex" for the economy and earnings, which could cause several economies to go into a recession.

Oil prices surge after Putin orders troops into Eastern Ukraine.

Experts say that the Federal Reserve is scrambling to fight inflation.

The stock market fell for the second week in a row.

The stock market fell 600 points as Russia-Ukraine tensions reached a critical moment.