Powell: The Federal Reserve can "wait and see" how the war affects inflation, no need to act yet

Federal Reserve Chair Jerome Powell said on Monday that the Fed can wait and watch how the Iran war’s impact on the economy and inflation unfolds, adding that policymakers typically temporarily overlook the short-term effects of shocks such as higher oil prices.

“We believe the current policy stance is in a good place, which allows us to wait and see how events develop,” Powell said during a Q&A session in a macroeconomics course at Harvard University.

His remarks appeared to calm financial markets that had been volatile last week on expectations that the Fed might raise interest rates to rein in rising inflation. Markets now have almost fully unwound rate-hike expectations.

As the Iran conflict enters its fifth week, the U.S. average gasoline price has risen to around $4 per gallon. Powell acknowledged that the Fed may face a dilemma between its two major responsibilities: achieving full employment and maintaining stable prices.

“There’s some downside risk to the labor market, which means interest rates should be kept low; but there’s upside risk to inflation, which in turn suggests that perhaps interest rates should not be kept low,” Powell said. “The two goals constrain each other.”

However, he said the Fed does not need to take action at present, but decision-makers are closely watching for signs that inflation expectations are worsening, which could indicate that response measures may be needed.

“Looking beyond the short term, inflation expectations appear to be staying well anchored,” Powell said.

Earlier this month, after ending its two-day policy meeting, the Fed kept the overnight policy rate target range unchanged at 3.50%-3.75%.

In the subsequent press conference, Powell said he wants to first see some easing in tariff-driven goods-price inflation, and then consider whether the Fed should ignore the inflation increase triggered by the Iran war or instead respond by tightening monetary policy to prevent inflation from accelerating.

On Monday, Powell pointed out that inflation has been above the Fed’s 2% target for about five years, influenced by a series of shocks: the collision of strong demand with constrained supply when the world reopened from COVID-19 lockdowns, and what he called a “much smaller” shock from tariffs in the recent period.

“We’re dealing with an energy shock right now: how big its impact will be is not known by anyone. It’s too early to draw conclusions now,” Powell said.

On Monday, oil prices moved in both directions. Brent crude futures fell about 0.7% to $111.81 per barrel; U.S. crude futures rose 2.7% to $102.36 per barrel. Since the outbreak of the conflict on February 28, both major benchmarks have risen sharply.

“Stick to what we’re doing”

A survey by the University of Michigan last week showed that households’ inflation expectations for the coming year jumped higher. At the same time, other measures—including a widely watched market-based indicator—were more optimistic.

“Powell’s wording is very textbook and also quite consistent with what he has said before,” Oliver Allen, a senior U.S. economist at Pantheon Macroeconomics, said. “Before the Fed figures out the precise shape, range, and magnitude of the energy shock in front of us, it is basically in a wait-and-see mode.”

During interactions with two course professors—David Laibson and Jason Furman—and on-site students, Powell actively answered questions covering topics such as private credit, the Fed’s balance sheet, the impacts of artificial intelligence (AI), and his mid-term optimistic outlook for the U.S. economy—despite the current weak hiring activity in the labor market making it especially difficult for newly graduated college students to find jobs.

When asked what advice he would give to former Fed governor Wosch, Powell avoided specific details. President Trump nominated Wosch to succeed Powell as Fed chair after Powell’s term ends on May 15.

However, Powell did note that the Fed should resist any temptation to use its tools to pursue anything beyond the responsibilities authorized by Congress—responsibilities that are to keep prices stable and to achieve full employment.

“We don’t want to pick a fight with any political figure or any administration, but we have to be careful, and stick to what we’re doing,” Powell said. Trump has repeatedly accused him of keeping borrowing costs too high.

Wosch has said he may support rate cuts.

A student asked how rate cuts would affect the Fed’s ability to carry out both responsibilities simultaneously, given the tariff policies implemented by the Trump administration and the recent oil-price shocks that have kept inflation elevated.

Powell noticed that the student was wearing a Boston Red Sox baseball jersey. He said, “I’m not going to swing at this ball.”

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责任编辑：李桐