Powell Press Conference: Will Not Cut Rates Before Inflation Improves, Will Serve as Interim Chair if Necessary

Author: Zhao Yuhe

Source: Wallstreet Jingwen

Key Points from Powell’s Press Conference:

1. The Federal Reserve is not cutting interest rates for now, and the possibility of rate hikes has returned to discussion: The Fed maintains the federal funds target range at 3.5%-3.75%. Powell clearly states that they will not consider rate cuts until inflation shows further improvement; meanwhile, internal discussions have begun on “the next possible move whether to raise rates,” though this is still not the baseline scenario for most officials.

2. Tariffs and energy are exerting a “double shock” on inflation: Powell points out that the cooling of inflation has significantly slowed, and short-term inflation expectations have risen again in recent weeks. Price pressures from tariffs are still transmitting to core inflation, and rising oil prices due to Middle East tensions add new upside risks. Commodity inflation is expected to decline noticeably, but this may not happen until mid-year at the earliest.

3. Labor market appears stable on the surface, but downside risks are accumulating: Powell admits that employment growth has slowed to a relatively low level, and with labor supply easing, the “balance” of the labor market is inherently fragile. Meanwhile, energy shocks not only push prices higher but may also suppress consumption, squeeze corporate costs, and disrupt supply chains, leading to negative chain reactions on employment and overall economic activity.

4. Energy crisis continues to escalate, with international oil prices rising sharply: Attacks on energy facilities due to Iran conflicts, threats of Strait of Hormuz blockade, and market fears of oil supply disruptions have driven Brent crude above $107. Powell emphasizes that it’s still uncertain how long this shock will last and how severe its impact will be, but its potential effects on the US and global economy should not be underestimated.

5. AI has not yet significantly boosted macro productivity; in the short term, it may even push neutral interest rates higher: Powell states that the recent productivity improvements cannot be attributed to generative AI, as its effects will take years to materialize. Conversely, large-scale data center construction is boosting demand for goods and services, which could increase inflation pressures and raise neutral rates.

6. Powell confirms he will not leave the Fed during the investigation period; he will continue to serve as “acting chair” if necessary: He states that he has no plans to resign before the investigation concludes and the process is transparent and the findings are clear; if his term ends before a successor is confirmed, he will serve as interim chair as required by law to ensure the Fed’s independence and operational stability.

On Wednesday, March 18, the Fed announced its interest rate decision, holding rates steady as expected. Powell stated at the press conference that short-term inflation expectations have risen in recent weeks, but most long-term expectations remain aligned with the 2% target.

In his opening remarks, Powell said the US employment situation remains generally stable, with a resilient consumer and ongoing growth in fixed investment. However, housing activity remains weak.

The latest Summary of Economic Projections (SEP) shows median forecasts of 2.4% GDP growth this year and 2.3% next year, slightly above December projections. The February unemployment rate was 4.4%, little changed since last summer.

Regarding employment, Powell notes:

“US employment growth has slowed. Over the past year, the pace of job gains has decelerated significantly, largely reflecting a slowdown in labor supply growth, related to reduced immigration and lower labor force participation. Meanwhile, labor demand has also softened.” Other indicators, including job openings, layoffs, hiring, and nominal wage growth, have been relatively stable in recent months. The SEP projects a median unemployment rate of 4.4% at year-end, with a slight decline thereafter.

On inflation, Powell states that US inflation has fallen from its mid-2022 highs but remains above the 2% target. Data show that as of February, the overall PCE price index increased 2.8% year-over-year, and core PCE rose 3.3% after excluding volatile food and energy prices. The higher readings partly reflect tariff-related increases in goods prices.

He notes that recent inflation expectations have risen in recent weeks, possibly due to oil price shocks, but long-term expectations remain broadly consistent with 2%. The median inflation forecast is 2.7% this year and 2.2% next year, slightly above December estimates.

Powell emphasizes:

“The impact of Middle East tensions on the US economy remains uncertain. In the short term, rising energy prices will push up overall inflation, but the scope and duration of this effect are still to be seen.”

The SEP’s median forecasts for the federal funds rate suggest a year-end rate of 3.4% this year and 3.1% next year, roughly unchanged from December. Powell reiterates that these are individual projections with inherent uncertainty and do not represent the Committee’s fixed plans; monetary policy will be data-dependent at each meeting.

In the Q&A, Powell stressed that recent shocks have interrupted the progress made in fighting inflation. He emphasized that without evidence of inflation improvement, rate cuts are off the table.

He also stated that current rates are near the boundary between restrictive and accommodative, and maintaining a modest restrictive stance is important. The Fed faces a difficult balancing act of risks. He mentioned that the possibility of further rate hikes has been discussed, but most officials do not see it as the baseline.

Regarding his tenure, Powell confirmed he will not resign during the investigation. If his successor is not confirmed by the end of his term, he will serve as interim chair to preserve the Fed’s independence.

Below is the Q&A transcript:

Q1: Some believe the Fed is “looking through” the rise in oil prices caused by Middle East conflicts. Is this approach appropriate now? Also, inflation has been above target for about five years—how much does this influence the Committee’s judgment?

Powell: First, we are very aware of inflation performance over the past few years. A series of shocks have interrupted our progress. The latest shock comes from tariffs, and future inflation will also be affected.

This year, our main focus is whether inflation can make progress, especially in reducing goods inflation. As tariff impacts are gradually absorbed into the system and economy, we hope to see this progress. That’s our primary concern now. We need to see evidence of progress to confirm that we are indeed improving. Overall, we have not made much progress. If you look at core inflation, it’s around 3%. A significant part—about 0.5 to 0.75 percentage points—is due to tariffs, and we are watching whether this will decline.

Regarding whether to “look through” energy inflation, that’s premature before confirming the above progress.

Traditionally, when facing energy shocks, the tendency is to “ignore” them, but this depends on whether inflation expectations remain stable.

And considering the broader context—long-term inflation above target—we must factor all these elements in.

When it becomes necessary to decide whether to “ignore” energy inflation, we will do so cautiously, not lightly.

Q2: Regarding SEP, can you explain why most officials lean toward rate cuts despite upward revisions in core inflation and stable growth and unemployment forecasts? What is the rationale for rate cuts? Why are they considered necessary?

Powell: There are 19 committee members, each with their own views and independent forecasts.

But if you look at the median, it hasn’t changed. However, there have been some adjustments, notably toward “fewer rate cuts.”

For example, four or five members have shifted from expecting two rate cuts to just one. Each has their own reasoning.

Overall, the key judgment is that we expect inflation to continue improving. Although the improvement may not be as large as previously thought, some progress is still expected. This progress should start to show around mid-year, mainly as tariff effects gradually transmit and inflation from tariffs begins to recede. We expect to see this.

Additionally, rate path forecasts depend on economic performance. If we do not see inflation improving, then rate cuts will not happen.

Q3: The inflation forecast for 2026 has been raised. Is this entirely due to the recent oil price shock, or are there other factors?

Powell: It’s partly due to that. But you know, this is not the main driver of core inflation. Oil shocks will be reflected in the data, and some will enter core inflation.

But it’s not just that. We haven’t yet seen the expected improvements in core goods inflation, including tariffs and other factors.

In any case, the upward revision in inflation forecasts is partly related to Middle East tensions and oil price changes.

It also reflects slow progress in tariff-related inflation. We believe progress will occur, but the question is how long it takes for these effects to fully transmit into the economy. That’s inherently a time-consuming process.

Q4: The SEP remains unchanged. Can you explain why? Is it because you expect the impact of oil shocks to gradually transmit and fade, or because you’re concerned that stock market declines and oil price increases will suppress consumption and economic growth, such as consumers shifting spending from other areas to gasoline? If so, why are rate forecasts unchanged? Do you think oil shocks are temporary, or do you expect economic growth to slow?

Powell: I want to emphasize that no one knows the outcome. The economic impact could be small or large; we truly don’t know.

People are simply making forecasts based on what they consider reasonable, but without strong conviction.

As you said, if oil prices stay high for a long time, that could suppress consumption, disposable income, and overall spending. But we don’t know if that will happen. It’s also possible that the transmission of oil prices to inflation will be less than expected.

In this SEP, many participants even mentioned that skipping a SEP might be appropriate, given the uncertainty.

I wouldn’t say anyone has a clear view that these effects will dissipate quickly or persist. You have to produce a forecast based on current information.

We also don’t debate how long these effects will last or how big they will be, because those are very uncertain. Everyone submits their own forecast.

Moreover, if you’ve already made a forecast, you’re unlikely to revise it significantly without new information, given the high uncertainty. The directional impact of this shock is very unclear.

Meanwhile, the US economy remains fundamentally resilient, with steady growth and inflation mainly driven by goods and tariffs.

The unemployment rate has been nearly unchanged since September last year. With limited demand and supply growth, the labor market’s balance still appears low.

Overall, the US economy is performing quite well. But we truly don’t know what this shock will ultimately cause. In fact, nobody does.

Q5: The Fed has previously pointed out that oil price increases impact consumption, but this effect is partly offset by increased domestic energy production. Can you discuss this dynamic? Specifically, what is the current state of US energy production?

Powell: First, the traditional, long-standing view is to “look through” energy shocks. As I mentioned, this presupposes stable inflation expectations, among other factors.

The “offset effect” is correct. The US is now a net energy exporter. The negative impact of rising oil prices on employment and spending is partly offset by higher profits for oil companies and increased drilling activity.

However, if you ask oil companies whether they will increase drilling, they usually want to see oil prices significantly above pre-war levels, and they need confidence that such high prices will last a long time.

They won’t start large-scale drilling just because oil prices break $70 per barrel. They will make a rational judgment that prices will stay higher for a longer period, and that the increase is “substantially higher.”

If the increase doesn’t reach that level, the change won’t be large; but if it does, over time, some increase is likely.

Overall, the net effect of this oil price shock will still exert some downward pressure on consumption and employment, while also pushing inflation upward.

Q6: If the Fed “looks through” the inflation caused by tariffs, yet inflation remains persistently above target; and on the other hand, it “ignores” oil shocks, how worried are you that this could undermine public confidence and credibility in the Fed’s commitment to the 2% inflation target?

Powell: We must carefully analyze and think through these issues. Of course, this is always on everyone’s mind.

We are very aware of historical experience. You can’t overreact to these issues, but you must also base decisions on facts and do your best. I don’t think we will let this problem influence our decisions beyond what is appropriate.

More broadly, this is the fifth year. We’ve experienced tariff shocks, pandemic shocks, and now some scale and duration of energy shocks. How big and how long this shock will last, we don’t really know.

The problem is that these shocks are recurring. You worry that repeated shocks could complicate inflation expectations. That’s why we pay close attention.

We are committed to taking all necessary measures to anchor inflation expectations at 2%. I think this is extremely important.

Q7: If housing service inflation remains above target, not just goods inflation, and the overall economy still performs well, what gives you confidence that inflation can return to the target in the coming years?

Powell: Well, currently, the policy rate can be seen as “at the higher end of the neutral range,” or “slightly restrictive,” or “mildly tight.” But no one can be very certain. Overall, it’s at a critical point—between “restrictive” and “not restrictive.”

Much of the expected inflation decline comes from the gradual fading of tariff impacts.

After tariffs are implemented, they push prices up to some extent, and consumers bear this one-time cost. We are waiting for this process to complete. It takes about 8, 9, 10, or even 11 months—almost a year—for these effects to fully transmit into the economy.

We are waiting for the tariff impacts from mid- to late last year to fully pass through. Then, goods inflation will return closer to historical norms. Over many years, goods inflation was actually negative; about zero before tariffs, and now around 2%. So current goods inflation is about 2%.

This inflation isn’t driven by the traditional Phillips curve mechanism, nor solely by tight monetary policy. It’s more a process of one-time shocks gradually fading.

Of course, we believe maintaining policy at a “slightly restrictive” or near that level is important. But we shouldn’t tighten too much, given downside risks to the labor market.

We are balancing two objectives: on one side, labor market downside risks suggest lowering rates; on the other, inflation risks are skewed upward, suggesting no rate cuts.

This is a challenging situation. We believe the current policy framework requires balancing these risks. We are roughly in a “slightly restrictive” zone, which we consider appropriate.

Q8: Regarding housing, some feel that inflation has not declined significantly over the past year. If wages and labor market conditions are easing, why hasn’t housing inflation slowed?

Powell: That’s a good question and somewhat frustrating.

Non-housing services inflation has been roughly flat over the past year, staying at similar levels. We expected it to decline but were affected by various idiosyncratic factors.

Meanwhile, this was an area where we should have seen improvement. As you said, the labor market is no longer the main driver of inflation. This should have impacted non-housing services inflation, but we haven’t seen much progress.

For this year, we expect housing services inflation to continue improving; goods inflation to decline as tariff effects fade; and non-housing services inflation to provide some downward push. That’s the scenario we hope for.

As to why there wasn’t much progress last year, that’s indeed worth pondering.

Q9: In December, employment data was revised downward by 17,000, and January and February revisions also showed declines. Do you think employment is more concerning than inflation at this point? PCE inflation has already eased somewhat.

Powell: I wouldn’t say that. I don’t think we can clearly say which risk is greater.

You can see that the unemployment rate has been stable. Over the past year, due to immigration policies and other factors, labor supply and demand have both declined significantly. In this context, looking at the number of new jobs gained is less meaningful than some ratio indicators. For example, the unemployment rate has remained steady since September last year.

From an inflation perspective, core inflation is around 3%, and overall inflation about 2.8%. This means we’ve been well above the 2% target for some time—about 0.7 to 1 percentage point higher.

That’s indeed a concern. We need to bring inflation below 2% and focus on that goal. Despite new inflation pressures from energy, it’s hard to say which risk is clearly larger.

Q10: What happens if no new Fed chair is confirmed before May 15? Will you continue to serve?

Powell: If my successor isn’t confirmed before my term ends, I will serve as “acting chair” until a new chair is confirmed. That’s mandated by law. We’ve done this before (including myself), and will do so again.

Also, regarding the investigation, I have no plans to resign before it concludes and the process is transparent with clear findings. Please refer to the Fed’s previous statements; you’ve seen them. I have nothing more to add.

As for whether I will stay on after my term and the investigation, I haven’t decided. I will decide based on what’s best for the institution and the public we serve.

I expect you’ll ask about this again, but I won’t comment further.

Q11: Some compare current conditions to historical episodes, such as past oil shocks. Can the Fed’s response to growth risks be analogous to historical experience? To what extent do you agree? What are the differences now?

Powell: It’s hard to draw conclusions before seeing actual data.

In some cases, such comparisons may be appropriate. For example, if we see the inflation progress I mentioned—fading tariff effects—then the situation might differ.

But overall, it’s hard to generalize. Much depends on the scale and duration of price impacts, and on changes in inflation expectations.

Q12: Regarding the Labor Department (BLS) reports, based on your forecasts and comments on the unemployment rate, it seems your assessment of the labor market largely relies on supply-side changes, and hasn’t changed much despite February’s negative employment data. Is that accurate? Also, did anyone in the meeting express concern about February’s employment report?

Powell: I think it’s best to look at January and February together. In a sense, January was a positive surprise, and February a negative one. Combining them, the result is roughly in the middle.

You also need to consider factors like strikes, weather, etc. These explain about 80,000 of the negative impact in February. Aside from these, from a macro perspective, many indicators still show the labor market remains relatively stable.

However, a significant portion of the Committee is concerned about the very low pace of employment growth.

If you look at the trend over the past six months and adjust for potential overcounting, private sector net employment growth is nearly zero.

In some ways, this is actually what the economy needs, as labor supply growth is almost nonexistent. This situation is unprecedented in US history. So, you see a “zero employment growth” equilibrium.

In a sense, this is a balance. But frankly, this balance carries downside risks and isn’t very reassuring. We are paying close attention and understand this logic. Everyone recognizes the arithmetic. You could say the “break-even point” is around zero.

Still, this is a situation we are watching closely and are concerned about. From another perspective, it can partly be seen as a policy choice, mainly influenced by changes in immigration policy, which is the biggest factor. But regardless, it’s a key issue we will continue to monitor.

Q13: Over the past few years, the US has faced multiple supply shocks—pandemic, tariffs, oil shocks. Do you think these are just “bad luck,” or has the world changed in a way that supply shocks are becoming more frequent? Should central banks treat supply shocks as a more regular concern?

Powell: We’ve experienced a long period mainly dominated by demand shocks. Over the past four or five years, we’ve accumulated a lot of experience in responding to supply shocks.

Supply shocks are much more complex. They immediately create tension between our dual mandates. As for whether the world has changed—pandemics are one-off events, right?

The current energy supply shocks are also one-offs. I don’t think they stem from a broader trend. The oil price shocks from Ukraine are essentially the result of military conflict.

I’m not sure the world has fundamentally changed to produce more frequent supply shocks. Many have written papers and given speeches trying to argue this.

But one fact remains: in the past five years, we’ve experienced more supply shocks than in many previous years.

Q14: Last year, you said the Fed was evaluating communication strategies, including SEP, as part of a policy framework review. How has that progressed? If given the chance, what changes would you make to communication?

Powell: There hasn’t been much progress on this. I can explain why.

We’ve seriously considered SEP and overall communication approaches, but no single plan has gained broad support within the Committee.

And in terms of communication strategy, changes shouldn’t be made without broad Committee backing. So, we haven’t made substantive adjustments.

I personally hoped to push some changes, but those ideas didn’t gain enough support. We’ve completed adjustments to the policy framework itself, which is the most important part.

So, ultimately, we didn’t pursue changes in communication. Frankly, I wish we had made some adjustments at the time, but it didn’t happen. Perhaps the next Chair will revisit this issue—I believe they will.

Q15: Some members have proposed adding “two-sided guidance” to policy communication. Was this discussed at today’s meeting? How supportive are members of such “dual guidance” amid rising inflation expectations?

Powell: This was indeed mentioned today. The possibility that the next policy move could be a rate hike was discussed at this meeting and also at the last. But most participants do not see this as their baseline scenario.

We do not exclude any options. Your description is accurate—as reflected in the minutes, some members expressed similar views, and such discussions did occur.

Q16: Beyond oil prices, many other commodities are affected by trade shocks, and supply chains are disrupted. How concerned are you that this could become an inflation problem beyond oil? Given monetary policy limitations, does the Fed have the capacity or will to respond?

Powell: You can certainly worry about other commodities and supply chain transmission channels.

But the reality is, these are beyond our control. Like others, we can only wait and see how the situation develops. The key questions are: how long will these conditions last, and how will they influence prices and consumer responses?

We need to observe these developments. I won’t speculate too much. Besides watching and waiting, there’s little else we can do.

Q17: You mentioned earlier that long-term inflation expectations are linked to public confidence in the Fed’s inflation target. Some colleagues have noted that divergence in inflation expectations among households, service sectors, and firms is widening, which could mean expectations are less stable than in the past. Was this discussed at this meeting? How does the Committee view current inflation expectations and the risks from oil price increases?

Powell: Several participants noted, and staff reported, that short-term inflation expectations have risen sharply, and we understand the reasons behind this.

As for long-term expectations, you can always find some indicators or segments that seem concerning.

But overall, during this phase, most indicators—including market measures, surveys, and professional forecasts—show that long-term inflation expectations remain quite stable and close to the 2% target.

This remains the case. There wasn’t much discussion on this point at the meeting.

But I believe everyone agrees that we will monitor these indicators very closely, especially as the price increases from conflicts gradually transmit into the economy.

Q18: Before this meeting, did the Committee discuss the risk of “slowing growth but persistent high inflation”? Most members’ forecasts don’t seem to reflect a significant slowdown. Is there any discussion of “stagflation risk” at this stage?

Powell: Some members have slightly raised their growth forecasts—by about 0.1 percentage points—possibly reflecting increased confidence in productivity.

Regarding stagflation risk, there is indeed tension between two objectives: inflation on the upside and employment on the downside. This creates a somewhat unique environment.

But when I use the term “stagflation,” I must note that it originally described the 1970s, when unemployment was double-digit and inflation was very high, with a “pain index” at historic highs.

That’s not the current situation. Unemployment is near its long-term normal level, and inflation is about 1 percentage point above target. Calling this “stagflation” isn’t appropriate. I reserve that term for more severe scenarios.

Right now, there’s some tension between two goals. We are trying to balance in this environment. It’s a difficult situation, but nowhere near the 1970s. I personally would reserve “stagflation” for that era—this is just my view.

Q19: Trump said that once the war ends, prices will quickly fall. Do you agree? US households have endured high prices for years, and now gasoline prices are up nearly $1 per gallon. Are you worried that low-income families will find it even harder to afford these increases? Some are also preparing for rising food prices.

Powell: I don’t make predictions about that.

We don’t know how big these impacts will be. People are already feeling the pressure from rising gasoline prices, approaching $1 per gallon. We hope this doesn’t last too long. No doubt, people will feel the strain.

But I don’t want to speculate on specific effects. Frankly, if I try to predict, it’s as if I already know what will happen. We need to observe how things develop. That’s all I’ll say for now.

Q20: To prepare for the next meeting, how will developments in the Middle East conflict influence your decision-making? If oil prices stay above $100 per barrel until the next meeting, would that change your current stance? Under what circumstances would you act? Are you currently prepared to hold rates unchanged indefinitely?

Powell: We need to wait and see.

As we always say, we expect to get more information before the next meeting, and usually that’s the case. This time, we will have a lot of new information. There are six weeks until the next meeting.

The development of the Middle East situation will significantly influence economic performance and outlook. It’s a key factor. We will have a clearer picture then. But I don’t know how it will affect our judgment now—I truly don’t.

We have discussed various scenarios at the meeting, but I won’t go into detail here. The uncertainty is very high.

I want to emphasize that we don’t know the outcome. We shouldn’t assume things will develop in one particular way. We can only wait and see.

Q21: Does this mean you don’t know how the situation will unfold, or even if the situation remains as is, the economy could still stay resilient?

Powell: That’s also true. The US economy has… faced many challenges, but overall, it remains strong.

Looking back at 2022 and 2023, when we raised rates sharply, nearly 100% of economists predicted a recession, but it didn’t happen. 2023 was actually very strong.

So, after experiencing many major changes, the US economy has performed quite well. That’s quite surprising.

I don’t know what will happen in the period before the next meeting, or how the Middle East situation will evolve. I prefer not to speculate.

Q22: What makes you think tariff-related price increases are just one-time effects? I notice you haven’t seen me since the Supreme Court ruling on tariffs. No one knows how big the impact of overturning tariffs will be. What leads you to believe tariffs are only a one-time price effect?

Powell: I wouldn’t describe my view as certain. I’m uncertain; there’s inherent uncertainty.

Fundamentally, tariffs are a one-time increase in certain goods prices, right? Inflation, on the other hand, involves prices rising continuously this year, next year, and beyond—that’s inflation. It’s not a one-time spike. There’s a big difference, but the public often doesn’t see it. That’s the key distinction.

Theoretically, tariffs should be a one-off impact. Unless they lead to expectations of more tariffs next year or the year after, they should be a typical one-time shock. The same logic applies to energy prices.

Usually, prices rise and then fall back. When monetary policy takes effect, these shocks tend to have already passed.

So, I’m not highly confident in this. The theory makes sense. But how long it takes for these effects to transmit through the economy is very uncertain. We saw this after the pandemic. Inflation did decline, largely for the reasons we initially judged, but it took two more years than expected.

Therefore, we must remain humble about how long tariffs’ effects will take to fully transmit into the economy.

Our current approach is that our staff has been researching this—it’s quite interesting. Initially, we could only estimate because of limited historical experience.

As we accumulate more data on how tariffs transmit into prices, a clearer pathway has emerged. For most tariffs, we can say we are somewhat more confident that “tariffs’ inflation will gradually decline.” Note: inflation, not prices, will decline—that is, prices will stop rising. We expect to see this more clearly by mid-year.

You’re right; after the Supreme Court ruling, tariffs did decline noticeably. But the government has announced it will gradually restore tariffs to previous levels. So, our assumption is that tariffs will be gradually reinstated over time.

That’s our current view.

Q23: You mentioned the limitations of SEP earlier. I’d like to ask again, especially during the transition period. For the public, is it still valuable to understand the views of other Fed officials—especially those who will remain in office this year and beyond? Also, does this in any way constrain your successor? For example, if the entire Committee expresses their views, could that “lock in” their policy path this year?

Powell: No, absolutely not. Each person in SEP can adjust their “dot plot” at any time. These forecasts are not binding. They are just individual judgments at a point in time, which can change quickly as events unfold.

They never “lock” anyone in. Everyone is open to being proven right or wrong, in either direction.

So, I think we should continue publishing these forecasts. As I mentioned, this is a difficult phase. During the pandemic, we even had a meeting where we didn’t publish SEP. But we didn’t want to do that, because it’s very hard, and we believe in transparency.

However, I must say that this forecast is more uncertain than usual. It should be interpreted with caution, not overemphasized.

Q24: You mentioned that long-term inflation expectations relate to public confidence in the Fed’s inflation goal. Some colleagues have pointed out that divergence in inflation expectations among households, service sectors, and firms is widening, which could mean expectations are less stable than before. Was this discussed at the meeting? How does the Committee view current inflation expectations and the risks from rising oil prices?

Powell: Several participants noted, and staff reported, that short-term inflation expectations have risen sharply, and we understand the reasons behind this.

As for long-term expectations, you can always find some indicators or segments that seem concerning.

But overall, during this phase, most indicators—including market measures, surveys, and professional forecasts—show that long-term inflation expectations remain quite stable and close to the 2% target.

This remains the case. There wasn’t much discussion on this point at the meeting.

But I believe everyone agrees that we will monitor these indicators very closely, especially as the price increases from conflicts gradually transmit into the economy.

Q25: Did the Committee discuss the risk of “slowing growth but persistent high inflation” before this meeting? Most members’ forecasts don’t seem to reflect a significant slowdown. Is there any discussion of “stagflation risk” at this stage?

Powell: Some members have slightly raised their growth forecasts—by about 0.1 percentage points—possibly reflecting increased confidence in productivity.

Regarding stagflation risk, there is indeed tension between two objectives: inflation on the upside and employment on the downside. This creates a somewhat unique environment.

But when I use the term “stagflation,” I must note that it originally described the 1970s, when unemployment was double-digit and inflation was very high, with a “pain index” at historic highs.

That’s not the current situation. Unemployment is near its long-term normal level, and inflation is about 1 percentage point above target. Calling this “stagflation” isn’t appropriate. I reserve that term for more severe scenarios.

Right now, there’s some tension between two goals. We are trying to balance in this environment. It’s a difficult situation, but nowhere near the 1970s. I personally would reserve “stagflation” for that era—this is just my view.

Q26: Trump said that once the war ends, prices will quickly fall. Do you agree? US households have endured high prices for years, and now gasoline prices are up nearly $1 per gallon. Are you worried that low-income families will find it even harder to afford these increases? Some are also preparing for rising food prices.

Powell: I don’t make predictions about that.

We don’t know how big these impacts will be. People are already feeling the pressure from rising gasoline prices, approaching $1 per gallon. We hope this doesn’t last too long. No doubt, people will feel the strain.

But I don’t want to speculate on specific effects. Frankly, if I try to predict, it’s as if I already know what will happen. We need to observe how things develop. That’s all I’ll say for now.

Q27: I’d like to ask about the development of the Middle East conflict and how it will influence your decision-making for the next meeting. If oil prices stay above $100 per barrel until then, would that change your current stance? Under what circumstances would you act? Are you prepared to hold rates steady indefinitely?

Powell: We must wait and see.

As always, we expect to get more information before the next meeting, and usually that’s the case. This time, we will have a lot of new information. There are six weeks until the next meeting.

The development of the Middle East situation will significantly influence economic performance and outlook. It’s a key factor. We will have a clearer picture then. But I don’t know how it will affect our judgment now—I truly don’t.

We have discussed various scenarios at the meeting, but I won’t go into detail here. The uncertainty is very high.

I want to emphasize that we don’t know the outcome. We shouldn’t assume things will develop in one particular way. We can only wait and see.

Q28: Does this mean you don’t know how the situation will unfold, or that even if the situation remains as is, the economy could still stay resilient?

Powell: That’s also true. The US economy has… faced many challenges, but overall, it remains strong.

If you look back at 2022 and 2023, when we raised rates sharply, nearly 100% of economists predicted a recession, but it didn’t happen. 2023 was actually very strong.

So, after many major changes, the US economy has performed quite well. That’s quite surprising.

I don’t know what will happen in the period before the next meeting, or how the Middle East situation will develop. I prefer not to speculate.

Q29: What makes you think tariff-related price increases are just one-time effects? I notice you haven’t seen me since the Supreme Court ruling on tariffs. No one knows how big the impact of overturning tariffs will be. What leads you to believe tariffs are only a one-time price effect?

Powell: I wouldn’t describe my view as certain. I’m uncertain; there’s inherent uncertainty.

Fundamentally, tariffs are a one-time increase in certain goods prices, right? Inflation involves prices rising continuously this year, next year, and beyond—that’s inflation. It’s not a one-time spike. There’s a big difference, but the public often doesn’t see it. That’s the key distinction.

Theoretically, tariffs should be a one-off impact. Unless they lead to expectations of more tariffs next year or the year after, they should be a typical one-time shock. The same logic applies to energy prices.

Usually, prices rise and then fall back. When monetary policy takes effect, these shocks tend to have already passed.

So, I’m not highly confident in this. The theory makes sense. But how long it takes for these effects to transmit through the economy is very uncertain. We saw this after the pandemic. Inflation did decline, largely for the reasons we initially judged, but it took two more years than expected.

Therefore, we must remain humble about how long tariffs’ effects will take to fully transmit into the economy.

Our current approach is that our staff has been researching this—it’s quite interesting. Initially, we could only estimate because of limited historical experience.

As we accumulate more data on how tariffs transmit into prices, a clearer pathway has emerged. For most tariffs, we can say we are somewhat more confident that “tariffs’ inflation will gradually decline.” Note: inflation, not prices, will decline—that is, prices will stop rising. We expect to see this more clearly by mid-year.

You’re right; after the Supreme Court ruling, tariffs did decline noticeably. But the government has announced it will gradually restore tariffs to previous levels. So, our assumption is that tariffs will be gradually reinstated over time.

That’s our current view.

Q30: You mentioned the limitations of SEP earlier. I’d like to ask again, especially during the transition period. For the public, is it still valuable to understand the views of other Fed officials—especially those who will remain in office this year and beyond? Also, does this in any way constrain your successor? For example, if the entire Committee expresses their views, could that “lock in” their policy path this year?

Powell: No, absolutely not. Each person in SEP can revise their “dot plot” at any time. These forecasts are not binding. They are just individual judgments at a point in time, which can change quickly as new data arrives.

They never “lock” anyone in. Everyone is open to being right or wrong, in either direction.

So, I think we should continue publishing these forecasts. As I said, this is a challenging phase. During the pandemic, we even had a meeting where we didn’t publish