US Fed Chair Powell Sees Inflation Outlook in Check, No Need to Hike Rates Because of Oil Shock

• US Fed Chair Jerome Powell, in a wide-ranging talk at Harvard University, said on Monday, that he sees inflation expectations as grounded, despite rising energy prices, so the central bank does not need to respond with higher interest rates.
• In the near term, he said the proper move is to look beyond the short-term gyrations of the energy market and focus on the Fed’s goals of 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,” the US Fed Chair noted. Powell said he believes the current rate target, in a range between 3.5%-3.75%, is “a good place” for the Fed to sit as it observes events currently playing out, including the Iran war and the impact tariffs are having on prices.
• The comments appeared to register in financial markets, with traders no longer pricing in a significant chance of a rate hike this year. As recently as Friday morning, markets were looking at a higher than 50% probability of a quarter percentage point increase amid expectations the Fed would react to the surge in energy costs. However, the odds of a hike by December 2026 fell to 2.2% after Powell’s appearance.
• According to Powell, raising rates now could have negative effects on the economy later, noting that Fed rate moves have a lagged impact, so tightening here wouldn’t help the inflationary impact of the Iran war. “By the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone… So the tendency is to look through any kind of a supply shock,” he added.

(Source: CNBC)