Powell Addresses Inflation Outlook Amid Rising Energy Prices
On Monday, Federal Reserve Chairman Jerome Powell expressed that policymakers shouldn’t overly concern themselves with the increase in energy prices linked to the ongoing conflict with Iran, indicating that there’s currently no justification for raising interest rates.
During his final public Q&A session before his term concludes in May, Powell addressed students at Harvard University, suggesting that officials should not fixate on energy supply shocks, as they tend to have only temporary effects. Instead, the focus should remain on maintaining stable prices and low unemployment levels.
“Inflation expectations appear to be well-established beyond just the short term, but we will likely face some questions on how to move forward,” Powell noted.
He remarked that the economic impact of the situation is still unclear, indicating that broader factors will influence future decisions.
His comments seemed to calm traders, significantly reducing the chances of a rate hike by December down to 2.2% from over 50% just days prior, according to data from the CME FedWatch.
Powell stated that the Fed is “well positioned” to maintain its interest rate target range of 3.5% to 3.75% as they monitor the potential long-term effects of the Iran conflict and tariffs imposed by President Trump. He skillfully sidestepped inquiries concerning the longer-term trajectory for interest rates.
Raising interest rates now to counteract war-related inflation doesn’t seem logical to him, as changes in Fed policy take time before their effects are fully felt in the economy. “By the time we start feeling the consequences of tightening, the oil price shock will likely be in the rearview mirror, and we would be pressuring the economy at an inappropriate time,” he explained.
Fed Director Steven Milan, who has consistently opposed interest rate hikes during meetings since last September, reiterated his support for potential rate cuts. He also emphasized the need for policymakers to evaluate the current energy supply disruption, explaining that if resolved gradually over the next year, it might ease the situation somewhat.
Recently, during a Fed meeting, most policymakers maintained their projections for the year, with the anticipated dot plot indicating one rate reduction this year and another one in 2027. Still, opinions within the Fed are notably split, with seven out of 19 members not expecting a rate cut this year, marking an increase from the previous update in December.
When asked about his successor’s plans regarding interest rates, Powell remarked, “I’m not going to be influenced by that.” Notably, President Trump’s nomination of former Federal Reserve head Kevin Warsh to succeed Powell has encountered hurdles, as Senator Thom Tillis (R-NC) has expressed intentions to block it.
U.S. Attorney Jeanine Pirro also challenged a judge’s decision to prevent a subpoena aimed at Powell. Warsh has advocated for a potential rate cut to lower rates more swiftly, especially after months of President Trump disparaging Powell with various insults.
