Powell states that long-term inflation expectations remain under control, emphasizing that monetary policy is in a good position

Federal Reserve Chair Jerome Powell said that long-term inflation expectations appear to be under control, but as the central bank evaluates the impact of the Iran war, it is closely monitoring changes.

Inflation expectations appear to be “anchored well after the short term,” Powell said on Monday at an event at Harvard University. He also said officials may need to respond to the effects of the conflict, but they have not reached that point yet.

“We don’t know what the economic impact will be,” Powell said. “We do believe policy is in a good position where we can take a wait-and-see approach.”

Oil prices have risen sharply since the war began a month ago, which could intensify inflation pressures while suppressing consumer demand and economic growth. This scenario will pose challenges for Federal Reserve policymaking because the central bank’s goals are to achieve full employment and stable prices.

“The inclination is to dismiss any kind of supply shock, but one of the crucial aspects is that we must closely watch inflation expectations,” Powell said.

U.S. Treasury yields rose after Powell’s remarks, while the stock market climbed.

Federal Reserve officials pointed to rising economic uncertainty after keeping interest rates unchanged for the second consecutive time earlier this month. After the decision, Powell emphasized that policymakers need to see more evidence that inflation is moving back down toward the 2% target before considering another rate cut.

Private Credit

When asked about turbulence in the private credit market, Powell said, “We are watching very closely,” adding that private credit is seeing an adjustment.

“I’m not willing to make any remarks that suggest we are taking lightly the risks, but we are looking at linkages with the banking system and factors that could lead to contagion.” Powell said. “We’re not seeing those right now.”

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