Powell Says Closely Monitoring Impact of Rising Oil Prices on U.S. Inflation

Federal Reserve Chair Jerome Powell said Wednesday that lowering inflation faces many challenges, including ongoing tariffs pushing up prices and energy costs rising due to conflicts in Iran, which the Fed may not be able to dismiss as temporary shocks.

At a press conference after the Fed’s latest two-day policy meeting, Powell stated that as the one-time effects of Trump’s tariff policies fade, the Fed needs to see core inflation decline this year.

The inflation rate measured by the Fed’s preferred indicator has been well above its 2% target, around 3%. Powell said, “A large part of that, about half to three-quarters, is actually caused by tariffs, so we are seeking progress in that area.”

Powell indicated that the Fed expects tariffs to cause one-time price increases but not to lead to year-over-year rises, and that these effects will diminish over time. He added that future tariff rates remain uncertain.

After the U.S. Supreme Court overturned tariffs imposed under emergency powers by Trump, U.S. tariff rates have decreased. However, the Trump administration plans to replace them with other tariffs, including those levied under the Unfair Trade Practices Act on goods from 16 major trading partners.

Given that it took two years for inflation peaks after the COVID-19 pandemic to subside, Powell said, “I think we need to be cautious about how long it takes for tariffs to have a full impact on the economy.”

Energy Prices Surge

When asked how high oil prices would need to rise above the current level of over $100 per barrel before the Fed would consider raising interest rates to curb further inflation, Powell declined to answer, saying only, “We are prepared to take all necessary measures.”

He noted that the Fed is closely monitoring how rising prices for diesel, aviation fuel, and other oil-based inputs affect overall inflation, and “how they permeate into core inflation.”

Regarding the price increases triggered by the Iran conflict, Powell said, “We are not yet sure how large this increase will be or how long it will last. It may or may not have a significant impact on the U.S. economy. We can only wait and see.”

Powell stated that whether the Fed will ignore energy prices’ impact on inflation partly depends on whether core inflation can be effectively controlled as tariffs’ effects fade — a goal that has not yet been achieved.

He added, “Only after we address core inflation will we truly consider whether to ignore the impact of energy prices on inflation.”