‘If we were ever to skip an SEP, this is a good one' – Fed Chair Powell sees heightened uncertainty amid Iran war impacts

• Four to five FOMC members shifted expectations from two rate cuts to one cut in 2026, though the median projection remained unchanged
• Powell stated oil price shocks would create net downward pressure on spending and employment while pushing inflation higher, despite the U.S. being a net energy exporter
• Powell confirmed he would serve as chair pro tem if his nominated successor Kevin Warsh is not confirmed before his term ends, and intends to remain on the Board until an ongoing Justice Department investigation concludes

Summary

Key Development: Federal Reserve Chair Jerome Powell held interest rates unchanged as expected but expressed significant uncertainty about economic projections due to the ongoing Iran conflict and its potential market impacts.

Main Points:

• Powell acknowledged heightened uncertainty, suggesting the Fed considered skipping the Summary of Economic Projections (SEP): "If we were ever to skip an SEP, this is a good one."

• Several FOMC voting members shifted their 2026 rate cut expectations from two cuts to one cut, though the median projection remained unchanged. Four to five members made this adjustment.

• On oil price shocks, Powell noted the U.S. is a net energy exporter, which could partially offset negative impacts through increased domestic drilling. However, he emphasized oil companies need prices consistently above $70/barrel and confidence in sustained levels before increasing production.

• Net impact of an oil shock would still create downward pressure on spending and employment while pushing inflation higher, reducing disposable personal income and consumption.

• Powell repeatedly stressed nobody can accurately predict the conflict's economic effects, stating projections have limited reliability.

Leadership Transition: Powell confirmed he would serve as chair pro tempore if Kevin Warsh (Trump's nominee) isn't confirmed before his term ends, as mandated by law. He also stated he won't leave the board until an ongoing Justice Department investigation concludes with "transparency and finality."

Market Implications: The Fed's cautious stance amid geopolitical uncertainty signals potential policy paralysis, with elevated risk of stagflation if oil prices surge sustainably. Energy sector may benefit from higher prices, though gains depend on sustained price levels.