Federal Reserve Chairman Jerome Powell sends a significant signal: inflation expectations are stable, and there is no need to raise interest rates to address the energy shock.
2026-03-31 12:28:15
Federal Reserve Chairman Jerome Powell said in a speech at Harvard University on Monday (March 30) that despite the sharp rise in energy prices due to the conflict with Iran, inflation expectations remain stable, so the Fed does not need to respond by raising interest rates at present.
This statement quickly impacted financial markets, with investors' expectations for a Federal Reserve rate hike this year falling sharply.
During a Q&A session with the host and students, Powell pointed out that inflation expectations remain quite firmly anchored outside the short term. He stated that the Fed's core objectives are to maintain price stability and low unemployment, and therefore it should move beyond short-term volatility in the energy market and focus on these long-term goals.
He said, "Inflation expectations appear to remain fairly firmly anchored in the short term, but in any case, this may ultimately be the question we need to face: what measures should be taken? We are not really facing this question yet because we do not know exactly what the economic impact will be, but we will certainly take the broader context into account when making decisions."
Powell stated that he believes the current target range for the federal funds rate (3.5%-3.75%) is an "appropriate position." The Fed can sit in this position and carefully observe the various events unfolding, including the impact of the Iran war and tariff policies on prices.
He added that raising interest rates now could have negative consequences for the economy later. This is because the impact of the Federal Reserve's interest rate adjustments on the economy has a significant lag; by the time the effects of tightening policies become apparent, the oil price shock may have already passed, potentially adding to the economy's burden at an inappropriate time.
Powell's speech had a significant impact on financial markets. Traders are no longer pricing in the possibility of a large rate hike this year. Just last Friday morning, the market considered the probability of a 25-basis-point rate hike by the Fed due to soaring energy costs to be over 50%. However, after Powell's speech, the probability of a rate hike by December has dropped to only 2.2%.
Market-based inflation expectations indicators, such as the breakeven rate in US Treasury yields, also suggest that market concerns about a sharp rise in inflation are not strong. The recent five-year breakeven rate is around 2.56% and has been trending downward over the past 10 days.
With Jerome Powell's term as Federal Reserve Chairman set to end in mid-May, US President Donald Trump has nominated former Fed Governor Kevin Warsh as his successor. When asked about his successor's policy inclinations, Powell stated, "I'm not going to take that ball," avoiding further discussion about the direction of long-term interest rates and plans for his successor.
Powell also addressed the $3 trillion private lending market. He noted that the market is currently experiencing rising default rates, investor withdrawals, and concerns about broader issues.
He said, "I don't want to make any statements that suggest we are downplaying the risks, but we are looking at the links to the banking system and the potential for contagion. We haven't seen those yet; what we are seeing is an ongoing correction. Of course, some people will lose money, but at this point, it doesn't seem to have the characteristics to evolve into a wider systemic event."
Overall, Powell's speech at Harvard University conveyed a relatively dovish signal. He believes that the current inflationary pressures from rising energy prices are a short-term supply shock, and the Federal Reserve does not need to rush to respond by raising interest rates, but instead chooses to continue to observe the actual performance of economic data.
This statement effectively alleviated market concerns about a Fed rate hike this year, significantly reducing the probability of such a hike.
As his term draws to a close, Powell reiterated that the Federal Reserve will remain focused on its dual mandate of price and employment stability, while remaining vigilant about potential risks in the private credit market, but seeing no clear signs of systemic risk. The future direction of the Fed's policy will continue to depend on the evolution of the Iranian conflict, energy price trends, and the performance of overall economic data.
This statement quickly impacted financial markets, with investors' expectations for a Federal Reserve rate hike this year falling sharply.
Powell emphasized that inflation expectations are solid and there is no need to adjust interest rates in the short term.
During a Q&A session with the host and students, Powell pointed out that inflation expectations remain quite firmly anchored outside the short term. He stated that the Fed's core objectives are to maintain price stability and low unemployment, and therefore it should move beyond short-term volatility in the energy market and focus on these long-term goals.
He said, "Inflation expectations appear to remain fairly firmly anchored in the short term, but in any case, this may ultimately be the question we need to face: what measures should be taken? We are not really facing this question yet because we do not know exactly what the economic impact will be, but we will certainly take the broader context into account when making decisions."
The current interest rate range is considered appropriate.
Powell stated that he believes the current target range for the federal funds rate (3.5%-3.75%) is an "appropriate position." The Fed can sit in this position and carefully observe the various events unfolding, including the impact of the Iran war and tariff policies on prices.
He added that raising interest rates now could have negative consequences for the economy later. This is because the impact of the Federal Reserve's interest rate adjustments on the economy has a significant lag; by the time the effects of tightening policies become apparent, the oil price shock may have already passed, potentially adding to the economy's burden at an inappropriate time.
The market reacted swiftly, significantly reducing the probability of an interest rate hike.
Powell's speech had a significant impact on financial markets. Traders are no longer pricing in the possibility of a large rate hike this year. Just last Friday morning, the market considered the probability of a 25-basis-point rate hike by the Fed due to soaring energy costs to be over 50%. However, after Powell's speech, the probability of a rate hike by December has dropped to only 2.2%.
Market-based inflation expectations indicators, such as the breakeven rate in US Treasury yields, also suggest that market concerns about a sharp rise in inflation are not strong. The recent five-year breakeven rate is around 2.56% and has been trending downward over the past 10 days.
With his term nearing its end, he is avoiding questions regarding his successor.
With Jerome Powell's term as Federal Reserve Chairman set to end in mid-May, US President Donald Trump has nominated former Fed Governor Kevin Warsh as his successor. When asked about his successor's policy inclinations, Powell stated, "I'm not going to take that ball," avoiding further discussion about the direction of long-term interest rates and plans for his successor.
We are monitoring the risks in the private lending market, but have not identified any systemic threats.
Powell also addressed the $3 trillion private lending market. He noted that the market is currently experiencing rising default rates, investor withdrawals, and concerns about broader issues.
He said, "I don't want to make any statements that suggest we are downplaying the risks, but we are looking at the links to the banking system and the potential for contagion. We haven't seen those yet; what we are seeing is an ongoing correction. Of course, some people will lose money, but at this point, it doesn't seem to have the characteristics to evolve into a wider systemic event."
Summary: The Federal Reserve maintained a cautious observation stance, and market expectations for interest rate cuts rebounded.
Overall, Powell's speech at Harvard University conveyed a relatively dovish signal. He believes that the current inflationary pressures from rising energy prices are a short-term supply shock, and the Federal Reserve does not need to rush to respond by raising interest rates, but instead chooses to continue to observe the actual performance of economic data.
This statement effectively alleviated market concerns about a Fed rate hike this year, significantly reducing the probability of such a hike.
As his term draws to a close, Powell reiterated that the Federal Reserve will remain focused on its dual mandate of price and employment stability, while remaining vigilant about potential risks in the private credit market, but seeing no clear signs of systemic risk. The future direction of the Fed's policy will continue to depend on the evolution of the Iranian conflict, energy price trends, and the performance of overall economic data.
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