Fed's Powell says no need to hike interest rates now — officials should look past higher energy prices

• Powell emphasized that rate hikes now would be pointless since monetary policy effects take time, and energy price shocks would likely dissipate before policy impacts the economy
• The Fed remains highly divided, with 7 of 19 members expecting no rate cuts this year (up from 6 in December), while the median 'dot plot' projection still shows one cut in 2026 and another in 2027
• Powell's successor Kevin Warsh's confirmation is stalled pending a criminal probe into Powell and over-budget Fed headquarters renovations, with Warsh having signaled support for faster rate cuts

Summary:

Federal Reserve Chair Jerome Powell stated Monday that the central bank should look past energy price increases stemming from the war on Iran and sees no need to raise interest rates currently. Speaking at Harvard University in one of his final appearances before his term expires in May, Powell emphasized that policymakers should focus on stable prices and low unemployment while assuming energy shocks will have only short-term impacts.

Key Developments:

• Interest Rate Outlook: Powell indicated the current target range of 3.5% to 3.75% is appropriate as the Fed assesses long-term effects from the Iran war and Trump's tariffs
• Market Reaction: Trader expectations for a rate hike by December plummeted to 2.2%, down from over 50% on Friday morning, according to CME FedWatch
• Policy Rationale: Powell noted that monetary policy changes take time to impact the economy, making immediate rate hikes counterproductive for addressing temporary oil price shocks

Fed Division:

The latest dot plot shows most policymakers projecting one rate cut in 2026 and another in 2027. However, the Fed remains divided—seven of 19 members expect no cuts this year, up from six in December. Fed Governor Stephen Miran, who has dissented at recent meetings, advocates for lowering rates by approximately one percentage point over the next year.

Leadership Transition:

Powell declined to comment on his successor's plans. Trump's nominee, former Fed Governor Kevin Warsh, awaits confirmation pending resolution of a criminal probe into the Fed's headquarters renovation budget overruns. Warsh has suggested he could support lower interest rates.