Powell at the FOMC press conference: The Iran war has muddied the waters.
2026-03-19 04:08:16
Powell's FOMC press conference today (March 18, 2026) has concluded. This meeting comes at a crucial juncture: the ongoing conflict with Iran, oil prices surging past $100, and inflation expectations being re-evaluated. As expected, the Federal Reserve kept interest rates unchanged, maintaining the target range at 3.5%–3.75%. Powell's statements during the Q&A session were more direct and carried a hint of "resignation" than usual.
A direct rebuttal to the "stagflation" label
The reporter immediately asked if the risk of stagflation was rising. Powell replied, "I reserve the word 'stagflation' for more serious situations. That's what stagflation was like in the 1970s, with double-digit inflation and high unemployment. We're far from that point now. There's just some tension between our two objectives, we're walking a tightrope, it's tricky, but it's nothing like the disaster of the 1970s."
This statement effectively cools the market – the Federal Reserve does not acknowledge the "stagflation" label, at least not for now. While it admits that oil price shocks will push up short-term inflation, it tends to view it as a one-off supply-side disruption that will not persist into a structural problem, provided the war does not drag on indefinitely.
The decision-making process was "like guesswork."
When pressed about the situation in Iran, Powell said, "Given that the situation in Iran is still evolving, we're guessing about a lot of things right now. Nobody knows how long this conflict will last, how oil prices will move, or how deeply it will affect the economy. So we can only look at the data one meeting at a time and can't make any promises in advance."
This is much more honest than the usual "I'm very data-dependent" rhetoric. It's tantamount to an open admission that geopolitical risks are too great, the Federal Reserve is not a prophet, and its current approach relies heavily on prediction. It can only proceed step by step.
The scenario of interest rate hikes has been clearly put on the table.
The most crucial question: If inflation doesn't fall and employment doesn't deteriorate further, is it possible to shift to raising interest rates? Powell didn't completely deny it, but said, "We're not ruling out any options. But this isn't anyone's baseline scenario right now—nobody considers raising interest rates as the next move. But ultimately, we'll do what we think is right."
Translation: Raising interest rates is not the mainstream plan, nor is it the idea of most committee members. However, if the oil price shock truly causes inflation expectations to lose their anchor and core inflation remains stubbornly high, the Fed will not sit idly by. Raising interest rates as an extreme response is still a contingency plan. He did not specify the triggering conditions, but emphasized that he is "prepared to make necessary adjustments based on the data." Although no one in the dot plot predicted a rate hike this year (one person predicted a rate hike next year), this tail risk has already been priced in slightly by the market (futures show the probability of a rate hike jumping from near 0 to around 20-25%).
The Double Pull of Employment vs. Inflation
Powell repeatedly emphasized, "Both jobs and inflation are important, and both are pulling us back." The unemployment rate forecast has been slightly revised upwards to around 4.4-4.5%, and employment data shows signs of softening (low hiring and low layoffs are still present, but the trend is cooling), but it hasn't collapsed yet. Inflation is certain to rise in the short term due to oil prices, and the SEP (Securities and Employments Policy) has slightly raised PCE inflation expectations (to around 2.4% in 2026), but it will still converge towards 2% in the long term. His implication is that we haven't reached the extreme point of sacrificing one to protect the other, but if oil prices remain high for a prolonged period and employment declines further, policy space will become increasingly limited.
The overall trend of the bitmap (SEP) is cautious.
The median rate cut in 2026 is still only one (25bp), with some even predicting zero cuts. The first rate cut is likely to be pushed back to the end of the third or fourth quarter. Economic growth expectations have been slightly adjusted (around 2.3%), indicating that a hard landing isn't truly anticipated, but the shadow of oil prices has made everyone more hawkish. Market reaction: US stocks fluctuated weakly (no major surprises or panic), long-term US Treasury yields rose slightly (due to the postponement of rate cut expectations and pricing in the tail risk of rate hikes), the dollar was supported, gold was under pressure, and crude oil fluctuated at high levels. Overall, it's a continuation of the "wait and see" approach.
Summarize
Iran's actions have muddied the waters. The Federal Reserve's strategy remains to hold steady and observe: the period of high interest rates is likely to be prolonged, and a rate cut is not expected until at least September, depending on the data. If the war drags on, inflation does not fall, and employment remains weak, the low-probability card of a rate hike may indeed be played. Market uncertainty continues to dominate, and tonight Powell completely shifted the focus to the situation in Iran and future data.
A direct rebuttal to the "stagflation" label
The reporter immediately asked if the risk of stagflation was rising. Powell replied, "I reserve the word 'stagflation' for more serious situations. That's what stagflation was like in the 1970s, with double-digit inflation and high unemployment. We're far from that point now. There's just some tension between our two objectives, we're walking a tightrope, it's tricky, but it's nothing like the disaster of the 1970s."
This statement effectively cools the market – the Federal Reserve does not acknowledge the "stagflation" label, at least not for now. While it admits that oil price shocks will push up short-term inflation, it tends to view it as a one-off supply-side disruption that will not persist into a structural problem, provided the war does not drag on indefinitely.
The decision-making process was "like guesswork."
When pressed about the situation in Iran, Powell said, "Given that the situation in Iran is still evolving, we're guessing about a lot of things right now. Nobody knows how long this conflict will last, how oil prices will move, or how deeply it will affect the economy. So we can only look at the data one meeting at a time and can't make any promises in advance."
This is much more honest than the usual "I'm very data-dependent" rhetoric. It's tantamount to an open admission that geopolitical risks are too great, the Federal Reserve is not a prophet, and its current approach relies heavily on prediction. It can only proceed step by step.
The scenario of interest rate hikes has been clearly put on the table.
The most crucial question: If inflation doesn't fall and employment doesn't deteriorate further, is it possible to shift to raising interest rates? Powell didn't completely deny it, but said, "We're not ruling out any options. But this isn't anyone's baseline scenario right now—nobody considers raising interest rates as the next move. But ultimately, we'll do what we think is right."
Translation: Raising interest rates is not the mainstream plan, nor is it the idea of most committee members. However, if the oil price shock truly causes inflation expectations to lose their anchor and core inflation remains stubbornly high, the Fed will not sit idly by. Raising interest rates as an extreme response is still a contingency plan. He did not specify the triggering conditions, but emphasized that he is "prepared to make necessary adjustments based on the data." Although no one in the dot plot predicted a rate hike this year (one person predicted a rate hike next year), this tail risk has already been priced in slightly by the market (futures show the probability of a rate hike jumping from near 0 to around 20-25%).
The Double Pull of Employment vs. Inflation
Powell repeatedly emphasized, "Both jobs and inflation are important, and both are pulling us back." The unemployment rate forecast has been slightly revised upwards to around 4.4-4.5%, and employment data shows signs of softening (low hiring and low layoffs are still present, but the trend is cooling), but it hasn't collapsed yet. Inflation is certain to rise in the short term due to oil prices, and the SEP (Securities and Employments Policy) has slightly raised PCE inflation expectations (to around 2.4% in 2026), but it will still converge towards 2% in the long term. His implication is that we haven't reached the extreme point of sacrificing one to protect the other, but if oil prices remain high for a prolonged period and employment declines further, policy space will become increasingly limited.
The overall trend of the bitmap (SEP) is cautious.
The median rate cut in 2026 is still only one (25bp), with some even predicting zero cuts. The first rate cut is likely to be pushed back to the end of the third or fourth quarter. Economic growth expectations have been slightly adjusted (around 2.3%), indicating that a hard landing isn't truly anticipated, but the shadow of oil prices has made everyone more hawkish. Market reaction: US stocks fluctuated weakly (no major surprises or panic), long-term US Treasury yields rose slightly (due to the postponement of rate cut expectations and pricing in the tail risk of rate hikes), the dollar was supported, gold was under pressure, and crude oil fluctuated at high levels. Overall, it's a continuation of the "wait and see" approach.
Summarize
Iran's actions have muddied the waters. The Federal Reserve's strategy remains to hold steady and observe: the period of high interest rates is likely to be prolonged, and a rate cut is not expected until at least September, depending on the data. If the war drags on, inflation does not fall, and employment remains weak, the low-probability card of a rate hike may indeed be played. Market uncertainty continues to dominate, and tonight Powell completely shifted the focus to the situation in Iran and future data.
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