Federal Reserve Chair Jerome Powell said Monday that policymakers should look past rising energy prices sparked by the war on Iran, adding that there is no need to hike interest rates now.
In one of his last scheduled public appearances as chairman before his term expires in May, Powell told Harvard University students during a Q&A that officials should look beyond energy supply shocks, assuming they create only a short-term impact, and focus on stable prices and low unemployment.
“Inflation expectations do appear to be well anchored beyond the short term, but nonetheless, it’s something we will eventually maybe face the question of what to do here,” Powell said Monday.
“We’re not really facing it yet, because we don’t know what the economic effects will be, but we’ll certainly be mindful of that broader context when we make that decision,” he added.
Powell’s comments soothed some fears among traders, who dropped odds of an interest-rate hike by this December to just 2.2% – down from more than 50% as recently as Friday morning, according to CME FedWatch, which tracks 30-day Fed Funds futures prices.
He said the current target range of 3.5% to 3.75% is “a good place” for the Fed to remain as it looks for signs on whether the Iran war and President Trump’s tariffs will have long-term effects on prices, though he avoided questions about the longer-term path of rates.
It takes time for the Fed’s policy changes to work their way through the economy, so hiking interest rates now to counter the war’s inflationary effects would be pointless, Powell observed.
“By the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone, and you’re weighing on the economy at a time when it’s not appropriate,” he said. “So the tendency is to look through any kind of a supply shock.”
Fed Governor Stephen Miran – who has dissented at each of the Fed meetings since last September – said he still supports lowering interest rates.
He has also argued that policymakers should look through the current energy supply shock, though he told CNBC on Monday that he believes “we could be about a point easier, gradually done over the course of a year.”
At the Fed’s meeting earlier this month, most policymakers kept their predictions for the year the same, with the closely-watched “dot plot” showing one rate cut this year and another in 2027.
Yet the Fed has remained highly divided, with seven of the body’s 19 members signaling they do not expect any rate cuts this year – one more person compared to the last update in December.
Asked to comment on his successor’s plans when it comes to interest rates, Powell said Monday, “I’m not going to swing at that pitch.”
Trump’s pick to succeed Powell, former Fed Governor Kevin Warsh, is stuck in limbo as Sen. Thom Tillis (R-NC) has vowed to block his nomination until the US ends its criminal probe into Powell and the Fed’s over-budget headquarters renovations.
US Attorney Jeanine Pirro has appealed a judge’s decision to block her subpoenas targeting Powell.
Warsh has argued he can lower interest rates, after months of Trump bashing Powell – calling him a “knucklehead” and “stupid person” – to slash rates at a faster pace.
