Federal Reserve Chair Jerome Powell, continuing to resist the immense pressure being put on him by President Donald Trump to lower interest rates, said the Fed is in a position to “wait and see” how the war in Iran affects the economy and the inflation rate before making such decisions.
Powell said Monday that policymakers typically look through shocks such as those from higher oil prices, according to report from Reuters.
Speaking during a presentation to a macroeconomics class at Harvard University, Reuters reported, Powell said,”We feel like our policy’s in a good place for us to wait and see how that turns out. Inflation expectations do appear to be well anchored beyond the short term.”
The Iran war has entered its fifth week and U.S. gasoline prices have climbed above $4 a gallon for the first time in four years. The Fed is looking at a potential squeeze between its two mandates of full employment and price stability.
Inflation has remained above the Fed’s 2% target for some five years, boosted by a series of shocks: the collision of strong demand and constrained supply as the world reopened from the Covid pandemic shutdowns, and more recently by what Powell called the “much smaller” shock from tariffs.
“We’re getting now an energy shock: no one knows how big it will be. It’s way too early to know,” Powell said, according to Reuters. “We do think our policy is in a good place for us to wait and see.”
The Fed left its overnight benchmark interest rate steady in the 3.50%-3.75% range earlier this month after the end of a two-day policy meeting.
Following that meeting, Powell said he would want to see tariff-driven inflation in goods prices subside before even getting to the question of whether the central bank ought to ignore any rise in inflation stemming from the Iran war, or to respond to it with tighter monetary policy to keep inflation from accelerating.
