Powell Says Fed Will ‘Wait and See’ as Oil Prices Surge
Federal Reserve Chair Jerome Powell stated on Monday that U.S. monetary policy is currently well-positioned to “wait and see” how rising oil prices—driven by the ongoing Middle East conflict—will impact inflation and economic growth.
Fed Maintains Cautious Approach Amid Uncertainty
Powell largely reiterated comments made earlier this month following the Federal Reserve’s latest policy meeting, emphasizing the high level of uncertainty surrounding the geopolitical situation and its economic consequences.
He stressed that the central bank is taking a cautious approach, given the unpredictable nature of energy-driven inflation shocks.
Monetary Policy Less Effective During Oil Supply Shocks
According to Powell, monetary policy tools are designed to influence demand and are not particularly effective in addressing short-term supply disruptions such as oil price spikes.
He explained that energy shocks tend to be temporary, while interest rate changes take time to impact the economy.
“Energy shocks often pass relatively quickly, while monetary policy operates with long and variable delays,” Powell said during a discussion at Harvard University.
Rate Hikes Could Risk Slowing the Economy
Powell warned that raising interest rates in response to oil-driven inflation could have unintended consequences. By the time tighter policy takes effect, the initial oil shock may have already subsided, potentially leaving the economy under unnecessary pressure.
This reinforces the Fed’s decision to remain patient rather than react aggressively to short-term price movements.
Fed Holds Rates Steady, Signals Possible Cut
Earlier this month, the Federal Reserve kept interest rates unchanged, in line with market expectations. However, policymakers acknowledged the uncertainty created by rising energy prices and geopolitical tensions.
The Fed’s updated projections still indicate the possibility of at least one rate cut this year, even as expectations for core inflation have increased.
Powell Highlights Lack of Visibility on Economic Impact
Powell also emphasized the difficulty of predicting the economic effects of the current situation. He noted that outcomes could vary widely, making it challenging for policymakers to act with strong conviction.
He reiterated that the Fed does not yet have a clear understanding of how the conflict and rising oil prices will ultimately affect the U.S. economy.
