- Fed Chair Powell says Middle East tensions will affect gas prices
- Powell says the Fed will not rush into an Oil-Driven response
- Powell said raising rates in response to an oil shock would be counterproductive.
Fed Chair Jerome Powell said Middle East tensions are pushing gas prices higher, adding that monetary policy is in a good place to wait. He warned that raising interest rates in response to an oil-driven shock could be counterproductive.
Powell’s latest comments also reinforce the Fed’s view that supply-driven energy shocks do not respond well to short-term rate action.
Powell Signals Wait-and-See Policy on Oil Shock
In today’s speech, Powell said, “We’re facing events in the Middle East which will certainly affect gas prices, and we feel like our policy’s in a good place for us to wait and see how that turns out.”
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.”
He explained that monetary policy works with long and variable lags, while energy shocks tend to be temporary. As a result, raising rates now may weigh on the economy after the oil shock has already passed.
Powell also highlights that interest rate tools influence demand rather than supply-driven energy disruptions. That leaves policymakers focused on watching how the current situation unfolds.
Fed Holds Rates as Oil Raises Inflation Risk
Earlier this month, the Federal Reserve kept interest rates unchanged, in line with market expectations. Policymakers highlighted uncertainty around how rising oil prices and Middle East tensions could affect inflation.
The latest dot plot still signaled at least one rate cut this year, even as projections showed higher core PCE inflation. Powell cautioned that confidence in forecasts remains limited and said economic outcomes could vary significantly.
Stocks Rise While Oil Prices Stay Elevated
Wall Street moved higher on Monday, with the Dow Jones Industrial Average gaining 415 points. The S&P 500 rose 0.5%, while the Nasdaq added 0.3%.
The rebound followed comments that the U.S. is engaged in discussions aimed at easing tensions with Iran. However, oil prices remained elevated. Brent crude traded above $112 per barrel, while WTI moved above $102.
Brent has climbed more than 55% in March, marking one of the sharpest monthly increases on record. The surge continues to pressure fuel costs and inflation expectations.
Related: Trump Warns Iran Over Strait of Hormuz, Signals New Talks
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