Powell Warns Inflation Pressures Remain, Says Energy Spike Manageable

Federal Reserve Chair Jerome Powell issued a stark warning that persistent inflation expectations pose a significant threat to economic stability, stating the central bank will not hesitate to act if price pressures become entrenched in the public psyche. Powell emphasized the critical risk lies in businesses and households beginning to believe prices will keep rising indefinitely, a scenario he labeled a fundamental problem for monetary policy. 'A series of these supply shocks can lead the public to start expecting higher inflation over time. Why wouldn’t they?' Powell remarked, underscoring the Fed's vigilant stance despite viewing the current energy price surge as manageable.

Powell keeps rates steady while watching inflation expectations rise

Powell then explained that energy shocks usually pass and do not last forever, so central banks often wait instead of reacting fast.

He said officials are watching closely for any sign that people expect prices to keep rising. That includes companies setting prices and families planning their spending. If those expectations change, the Fed may have to step in, even if growth is weak.

The Fed then has to choose between fighting inflation or supporting growth, and the ever-so-vague-and-tactful Chair Powell did not give a clear answer on what the Fed will do if that moment comes.

He said, “We will eventually maybe face the question of what to do here. We’re not really facing it yet because we don’t know what the economic effects will be.” He said this while speaking to students at Harvard during a basic economics class.

Trump’s war in Iran has disrupted shipping through the critical Strait of Hormuz route, which is key for global oil flows. Inflation was already moving higher earlier this year before this shock hit, which makes things harder for the Fed.

At the March 18 meeting, the Fed voted 11 to 1 to keep rates between 3.5% and 3.75%. Stephen Miran was the only one who wanted a cut. After that meeting, Powell pushed back on forecasts from other officials that showed possible rate cuts later this year. He said those outlooks depend on inflation slowing again, which has not really happened since last summer.

As you likely know, Powell’s term ends May 15, and Kevin Warsh has been picked to replace him, but the Senate has not set a hearing date. Thom Tillis said he will block that process until a Justice Department probe into Powell is finished.

Powell said earlier this month he will stay on as chair pro tempore if no one is confirmed by then. He also said he will remain on the board until that investigation is done.

Oil prices fall as Trump signals possible end to Iran conflict

Meanwhile, Donald Trump said he is open to ending U.S. action tied to the conflict even if the Strait of Hormuz stays closed. He told aides that pushing Iran to reopen the route could drag the conflict out longer.

Markets reacted fast. West Texas Intermediate for May dropped 0.72% to $102.14 a barrel. Brent for May fell 1% to $111.55. Traders pulled back as they tried to figure out what would happen next.

Trump has been caught lying so many times its impossible to keep count. He has said talks are going well, to which Iranian officials have been mocking him on social media, saying they have not and will not respond to any of his calls as they don’t want to talk to the “Epstein class.”

Trump insists that he is telling the truth and even claimed again that they sent him ten boats of oil as a gift/show of good faith.

Shortly after, he was seen telling reporters Iran agreed to “most of” a 15-point ceasefire plan. Tehran pushed back and set its own conditions, including keeping control of the Strait of Hormuz.

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