Federal Reserve Chair Rules Out Rate Hikes

(MENAFN) Federal Reserve Chair Jerome Powell signaled Monday that the US central bank has no intention of raising interest rates in the near term to counter the recent oil price shock, arguing that premature tightening could inflict unnecessary damage on an economy already navigating significant geopolitical and trade headwinds.

Addressing an audience at Harvard University, Powell made clear that policymakers are not yet at a juncture requiring a rate response to surging energy costs, citing unresolved uncertainties surrounding the economic fallout from the Iran war and mounting tariff-driven price pressures. “Inflation expectations do appear to be well anchored beyond the short term,” he said, while signaling the Fed would remain attentive to the broader economic environment in shaping future decisions.

The remarks come as oil prices have catapulted more than 45% over a single month — a staggering move driven by attacks on Iranian and Gulf oil infrastructure and the closure of the Strait of Hormuz. Despite that inflationary fuel, Powell defended the current policy rate range of 3.5% to 3.75% as “a good place” for the Fed to hold as it monitors incoming data.

His reasoning was pointed: responding to a supply-driven shock with rate increases could prove self-defeating, given that monetary policy operates with a considerable lag. “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, reiterating the Fed’s established tendency to “look through” supply shocks rather than react to them mechanically.

Markets responded swiftly. Traders sharply pared back bets on a quarter-point rate increase following Powell’s appearance, reversing expectations that had solidified as recently as late last week — a clear sign that his message landed with conviction across trading desks.

Powell also turned his attention to the $3 trillion private credit sector, where rising defaults and investor withdrawals have drawn increasing scrutiny. While acknowledging the turbulence, he stopped well short of sounding systemic alarm bells. “What we see is a correction going on,” he said. “But it doesn’t seem to have the makings of a broader systemic event.” Officials, he added, currently see no evidence of contagion spreading into the broader banking system.

On the question of succession, Powell — whose term as Fed chair is set to expire in mid-May — declined to weigh in on the policy outlook of his designated replacement, former Fed Governor Kevin Warsh, leaving markets to speculate on whether the institution’s current posture would survive the leadership transition intact.

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