Federal Reserve Chairman Jerome Powell stated on Monday that he is not overly concerned about the energy market shock caused by the war in Iran, noting that energy supply disruptions have historically been short-lived and that long-term inflation expectations remain firm despite the conflict.

Speaking to undergraduate economics students at Harvard University, Powell said that the central bank's usual response to energy shocks is to wait for the shock to subside rather than immediately reacting with policy changes.

He added that public expectations for long-term inflation "appear to be firmly anchored beyond the current short-term increase" despite the sharp rise in oil prices since the outbreak of the war.

However, Powell warned that the Fed should not take this for granted. With inflation still above the central bank's 2% target years after the pandemic, he cautioned that a series of price shocks could eventually shift public perceptions.

"If these supply shocks continue to occur one after another, it can lead the public, including businesses, price setters, and households, to expect that inflation will be higher over time," Powell said. "And why shouldn't they expect that?"

Powell described the Fed's current dilemma as a tension between its two mandates: price stability and maximum employment.

"There are arguments for keeping rates low due to downside risks in the labor market, but there are also arguments for not keeping rates low due to upside risks to inflation," he said.

Oil prices surged due to disruptions in maritime transport in the Strait of Hormuz following the Epic Fury operation. The Fed's preferred measure of core inflation was already trending upward before the conflict began.

The Fed decided on March 18 by an 11-1 vote to keep its federal funds rate in the range of 3.5% to 3.75%. Only Steven Miran, a Fed governor appointed by President Trump earlier this year, voted in favor of a rate cut.

Powell's term expires on May 15. The Senate has yet to schedule confirmation hearings for Kevin Wash, a former Fed governor nominated by President Trump in January to succeed Powell.

Earlier this month, Powell made an unsubstantiated statement that he would continue as "interim chairman" after his term expires if his successor is not confirmed. There is no precedent for a chairman whose term has expired to continue in office without reappointment by the president or confirmation of a successor.

In the weeks following the March meeting, Fed officials have signaled that the bar for rate cuts has risen significantly. Several policymakers have indicated that the central bank is likely to keep rates on hold until the labor market shows clear signs of weakening or inflation falls back to the 2% target.

By Sung Ku Hong, Chief Reporter / Special Contribution NNP info@newsandpost.com