Kamal Ghorui
Federal Reserve Chair Jerome Powell on Monday said the central bank is closely monitoring inflation risks arising from the spike in energy prices due to the Iran war, but cautioned that there is limited scope for policy intervention in such supply-driven shocks.Speaking at Harvard University before nearly 400 students, Powell said energy shocks typically tend to be short-lived and monetary policy works with a lag.He said policymakers must remain alert to shifts in inflation expectations. “You have to carefully monitor inflation expectations because you could have a series of big supply shocks and that can lead, you know, the public generally, businesses, price setters, households … to start expecting higher inflation over time. Why wouldn’t it?” Powell said, AP quoted.His remarks come as US gasoline prices approach $4 per gallon, reflecting rising global oil prices triggered by the ongoing conflict in the Middle East.Powell noted that while inflation expectations remain contained for now, repeated shocks could pose a broader challenge to price stability.In his interaction, he also highlighted concerns around the labour market, particularly for young job seekers. While unemployment remains low, hiring activity has been subdued, creating what economists describe as a “low-hire, low-fire” environment.Employers added fewer than 10,000 jobs per month in 2025 — the weakest pace outside a recession since 2002. After a relatively strong start this year with 126,000 jobs added in January, the economy saw 92,000 job losses the following month.Powell said technological changes, including the rise of artificial intelligence, may also be influencing hiring decisions, particularly at entry-level roles.Despite near-term challenges, he expressed optimism about long-term economic prospects, noting that innovation has historically boosted productivity and living standards.“You’re in a situation where you need to really invest the time to master the use of these new technologies,” Powell said. “There’s no denying it’s a challenging time to enter the labor market, It may take some patience and all that, but in the longer term, this economy is going to give you great opportunities. Just be a little optimistic.”Powell also underscored the importance of maintaining the Federal Reserve’s independence amid political pressures.“It’s very hard to build great democratic institutions and much easier to bring them down,” he said.The Fed chair’s comments come amid continued criticism from President Donald Trump, who has urged the central bank to cut interest rates. However, Powell reiterated that the Fed must remain focused on its mandate of price stability and maximum employment.“We have very powerful tools. They’re supposed to be for maximum employment and price stability and financial stability,” he said. “There’s always a time when an administration looks and say it would be good to use that tool for something else … We just have to be in a situation where we’re not trying to work against any politician or any administration, but we have to be careful to stick to what we’re doing.”
