Powell: The Federal Reserve will "wait and see" before taking further interest rate actions

Federal Reserve Chair Jerome Powell said on Monday that the U.S. monetary policy is currently in good shape, and that the Fed will wait and see the impact of the current Middle East conflict on the economy and inflation before taking further action on interest rates.

Powell reiterated that it is too early to judge the long-term scope and duration of the war’s impact on the economy, and noted that geopolitical risks make the economic outlook full of uncertainty. The Fed chair said that energy shocks are usually temporary; once the shock passes, raising rates immediately to address the inflation sparked by a surge in oil prices could ultimately hurt the economy. At its March 18 meeting, the Fed left interest rates unchanged at 3.50%-3.75%.

After the outbreak of the Middle East war, oil and fuel prices rose sharply. The national average price for regular gasoline is currently $3.990 per gallon, up from $2.982 a month ago, and inflation risks have therefore increased.

The Trump administration has taken action to calm the oil market. U.S. Treasury Secretary Scott Bessent said that global oil markets have adequate supply. “Over time, the U.S. will regain control of the strait, and freedom of navigation will be ensured—whether through U.S. escorts or multilateral escorts,” Bessent told the media.

However, traders do not seem convinced. The money market currently sees a 42%-52% probability of rate hikes, while the probability that there will be no rate cuts in 2026 is 92%, a stark reversal from previous expectations of multiple rate cuts. Higher energy costs increase transportation and production expenses, pushing up overall inflation and complicating the Fed’s progress toward its 2% inflation target. High energy prices also tend to slow economic growth, creating a “stagflation” environment that limits the Fed’s ability to cut rates.

Due to Middle East geopolitical tensions and limited supplies of alternatives, oil prices are expected to remain elevated and may last until 2027. Goldman Sachs has warned of structural supply shortages caused by the conflict. Analysts predict that if the Strait of Hormuz remains closed, oil prices could reach $150 to $200 per barrel.

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Byline: Zhang Jun SF065