Fed Chair Powell signals no urgency for Fed rate hike amid oil shock

ISTANBUL

US Federal Reserve Chair Jerome Powell said Monday the US central bank sees no immediate need to raise interest rates in response to the recent oil price shock, arguing that inflation expectations remain under control and that tightening policy now could unnecessarily weigh on the economy later.

Speaking at Harvard University, Powell said the Fed is not yet facing a point where it needs to respond to higher energy prices with a rate increase, as policymakers still do not know the full economic effects of the Iran war and tariff-related price pressures.

“Inflation expectations do appear to be well anchored beyond the short term,” Powell said, while noting that the central bank would remain mindful of the broader backdrop when making future decisions.

Oil prices have surged over 45% in a month following attacks on Iranian and Gulf oil infrastructure and the closing of the Strait of Hormuz.

Powell said the current policy rate, held in a range of 3.5% to 3.75%, remains “a good place” for the Fed as it monitors developments in the economy, including geopolitical tensions and their impact on inflation.

He cautioned that raising rates in response to a supply-driven oil shock could prove counterproductive, since monetary policy works with a lag and may start to restrain growth only after the impact of higher oil prices has already faded.

“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,” Powell said, adding that the Fed tends to “look through” supply shocks.

His remarks appeared to ease market expectations for further tightening this year. Traders sharply reduced bets on a quarter-point rate increase after Powell’s appearance, compared with expectations seen late last week.

Powell also said the Fed is closely monitoring risks in the $3 trillion private credit sector, where defaults have risen and some investors have withdrawn funds, but added that officials do not currently see signs of contagion to the banking system.

“What we see is a correction going on,” he said. “But it doesn’t seem to have the makings of a broader systemic event.”

Powell, whose term as Fed chair is due to end in mid-May, declined to comment on the policy preferences of his designated successor, former Fed Governor Kevin Warsh.

ISTANBUL

Oil prices have surged over 45% in a month following attacks on Iranian and Gulf oil infrastructure and the closing of the Strait of Hormuz.

“What we see is a correction going on,” he said. “But it doesn’t seem to have the makings of a broader systemic event.”

Powell, whose term as Fed chair is due to end in mid-May, declined to comment on the policy preferences of his designated successor, former Fed Governor Kevin Warsh.