US Stock Market | Fed stays put as Powell flags uncertainty from energy shock

Federal Reserve Chair Jerome Powell struck a measured tone on Monday, indicating that the US central bank is in no rush to adjust interest rates as it assesses the evolving economic impact of the ongoing Iran conflict. Speaking at an academic session at Harvard University, Powell suggested that the Fed remains comfortable with its current policy stance and is prepared to wait for clearer signals before making any moves, according to a Reuters report.

His remarks helped soothe financial markets, which had recently begun pricing in the possibility of further rate hikes in response to rising inflation risks. Those expectations have now largely receded, reflecting growing confidence that the Fed will not react hastily to short-term shocks.

As the conflict enters its fifth week, rising fuel prices, hovering near $4 per gallon in the US, have added a new layer of complexity to the Fed’s policy outlook. Powell acknowledged the inherent tension between the central bank’s dual mandate of maintaining price stability and supporting maximum employment. While higher oil prices could push inflation upward, there are also signs of fragility in the labour market, creating a delicate balancing act for policymakers, Reuters noted.

Despite these crosscurrents, the Fed appears inclined to stay on hold for now. Policymakers are closely monitoring inflation expectations, which Powell indicated remain broadly stable over the longer term. This stability gives the central bank some room to remain patient, even as it evaluates incoming data for signs of more persistent inflationary pressure.

Earlier this month, the Fed opted to keep its benchmark interest rate unchanged in the 3.50% to 3.75% range following its policy meeting. Powell reiterated that any future decisions would depend on how inflation evolves, particularly in light of tariff-related pressures and the latest surge in energy prices.

Inflation in the United States has remained above the Fed’s 2% target for several years, shaped by a series of global disruptions. These include supply-demand imbalances following the COVID-19 pandemic, trade-related price pressures, and now a fresh energy shock stemming from geopolitical tensions. Powell emphasised that the magnitude and duration of this latest shock remain uncertain, Reuters reported.

Oil markets continue to reflect this uncertainty. While price movements were mixed on Monday, both Brent and US crude benchmarks have climbed sharply since the conflict began in late February, underscoring the inflationary risks tied to energy costs.Economists largely interpreted Powell’s comments as consistent with the Fed’s recent communication strategy. Analysts noted that the central bank appears to be in a “holding pattern”, awaiting greater clarity on how the energy shock will unfold and whether it will materially alter the inflation trajectory, Reuters said.

Beyond immediate policy concerns, Powell also addressed a range of broader economic issues during the session, including financial stability, artificial intelligence, and labour market challenges. He expressed a cautiously optimistic outlook for the US economy over the medium term, even as hiring conditions remain difficult for certain segments, particularly recent graduates, according to Reuters.

On the question of future Fed leadership, Powell refrained from offering direct guidance but underscored the importance of maintaining the central bank’s focus on its core mandates. He emphasised that monetary policy should remain insulated from political considerations, reinforcing the Fed’s commitment to its institutional independence.

Overall, Powell’s remarks reinforced a central theme: in the face of heightened geopolitical uncertainty and mixed economic signals, the Federal Reserve is choosing patience over pre-emption, keeping its options open as it navigates an increasingly complex global landscape.