Jerome Powell: This is a worrying time
JAKARTA - Federal Reserve officials already saw in their March meeting that the US-Iran war would push inflation higher throughout the year. Minutes of the meeting, due to be released on Wednesday, are expected to provide more detail on the risks policymakers see for the economy and labour market.
Citing Reuters, during the Fed’s March 17–18 meeting, global oil prices surged from around USD 70 to USD 100 per barrel. Nearly all Fed officials subsequently raised their 2026 inflation forecasts.
Fed Chair Jerome Powell said uncertainty remains high and that the central bank is considering multiple scenarios for the war’s impact. “We did talk a little bit about alternative scenarios,” Powell said.
“The situation is very uncertain. We shouldn’t assume everything will go according to plan.”
The Fed kept interest rates in the 3.5%–3.75% range and has not signalled any near-term changes. Expectations for rate cuts this year have shifted toward a longer pause, possibly extending into 2027.
Meanwhile, inflation concerns were already present before the conflict, with price growth remaining above the 2% target. The surge in energy prices due to the war has reinforced those risks, while also raising the possibility of pressure on growth and employment if consumption weakens.
Latest projections show Personal Consumption Expenditures (PCE) inflation in 2026 rising to 2.7% from a previous 2.4%. Core inflation is also expected to increase to 2.7%.
Research from the Federal Reserve Bank of Dallas suggests risks could be even higher if supply disruptions continue. A three-to-six-month closure of the Strait of Hormuz could push oil prices to between USD 132 and USD 167 per barrel and add up to 1.47 percentage points to US inflation.
More than five weeks into the conflict, inflation concerns are rising even as labour market data remains strong. Chicago Fed President Austan Goolsbee said the current situation is becoming increasingly pressurised.
“I am optimistic that we will get back to the 2% inflation path, but goodness, lately it has gone from orange to red.”
“We had price increases from tariffs that were supposed to fade, but they didn’t, and now we are adding another stagflation shock on top of that. This is a worrying moment.” (DH/LM)
