Federal Reserve Chairman Jerome Powell said that the US central bank is now at a crossroads on whether to raise or lower interest rates. Speaking at Harvard University, he acknowledged that there is a tension between the risk of a weakening labor market and the risk of rising inflation triggered by international conflict.
The Fed remains committed to bringing inflation back to its 2% target, a level it has failed to achieve since 2021. Although early March projections indicated the possibility of a rate cut this year, Powell stressed that no drastic decisions will be taken for now until the real economic impact of the Iran war becomes clearer.
Regarding inflation factors, Powell revealed that import tariff policies could add between 0.5% and 1% to the overall inflation rate. He also acknowledged that the unrest in the Middle East has put direct pressure on gasoline prices, but he believes consumer inflation expectations remain stable.
The leadership situation at the Fed is also a concern as Powell’s term ends on May 15.
Powell concluded that US monetary policy is currently in a “wait and see” position. He stressed the importance of the Fed remaining free from political influence to ensure long-term economic stability amidst a highly uncertain geopolitical environment.
