Powell: Will Not Cut Rates Before Inflation Improves, Will Not Leave Federal Reserve During Investigation, Will Serve as Acting Chair if Necessary

Question: Why are AI and inflation improvements being dragged down by tariffs and energy shocks?

Key points from the Powell press conference:

1. The Federal Reserve is not cutting interest rates for now, and the possibility of rate hikes is back on the table: The Fed maintains the federal funds target range at 3.5%-3.75%. Powell clearly states that they will not consider rate cuts until inflation shows further improvement; meanwhile, the committee has begun discussing “what the next step might be—whether to raise rates,” although this is not the baseline assumption for most officials.

2. Tariffs and energy are exerting a “double shock” on inflation: Powell notes that the cooling of inflation has significantly slowed, with short-term inflation expectations rising again in recent weeks. Price pressures from tariffs are still transmitting to core inflation, and rising oil prices due to Middle East tensions add new upside risks. Commodity inflation is expected to decline noticeably, but probably not until mid-year at the earliest.

3. The labor market appears stable on the surface, but downside risks are accumulating: Powell admits that job growth has slowed to a lower level, and with labor supply easing, the “balance” of the labor market is inherently fragile. At the same time, energy shocks not only push up prices but may also suppress consumption, squeeze business costs, and disrupt supply chains, leading to negative chain reactions on employment and overall economic activity.

4. The energy crisis continues to escalate, with international oil prices rising sharply: Attacks on energy facilities due to Iran conflicts, threats of Strait of Hormuz blockade, and market fears of oil supply disruptions have driven Brent crude above $107. Powell emphasizes that it’s still uncertain how long this shock will last and how severe its impact will be, but its potential effects on the US and global economy should not be underestimated.

5. AI has not yet significantly boosted productivity at the macro level and may even push up neutral interest rates in the short term: Powell states that current productivity improvements cannot be attributed to generative AI, as the effects will take years to materialize. Conversely, large-scale data center construction is boosting demand for goods and services, which could increase inflation pressures and raise neutral interest rates.

6. Powell confirms he will not leave the Fed during the investigation period; he will continue to serve as “acting chair” if necessary: He states that until the investigation is complete, transparent, and conclusive, he has no plans to resign. If his term ends before a successor is confirmed, he will serve as interim chair as required by law, ensuring the Fed’s operations and independence are not politicized.

On Wednesday, March 18, the Fed announced its interest rate decision, holding rates steady as expected. Powell said at the press conference that short-term inflation expectations have risen in recent weeks, but most long-term expectations remain aligned with the 2% target.

In his opening remarks, Powell said the US employment situation remains generally stable, with a resilient consumer and ongoing growth in fixed investment. However, the labor market’s overall balance remains fragile, with unemployment at a low level. He noted that developments in the Middle East still pose uncertainties for the US economy.

The full FOMC meeting summary: rates unchanged, how will Middle East tensions influence rate trends?

Powell stated,

“Current indicators show that economic activity is expanding at a solid pace. Consumer spending remains resilient, and fixed investment continues to grow. In contrast, housing market activity remains weak.”

In the latest Summary of Economic Projections (SEP), the median forecast shows US GDP growth of 2.4% this year and 2.3% next year, slightly higher than the December projections. Regarding the labor market, the February unemployment rate was 4.4%, little changed since last summer.

On employment, Powell said that US job growth has slowed. Over the past year, the slowdown largely reflects reduced labor supply growth, related to decreased immigration and lower labor force participation, along with weakening labor demand. Other indicators, including job openings, layoffs, hiring, and nominal wage growth, have been relatively stable in recent months. The SEP projects a median unemployment rate of 4.4% by year-end, then slightly declining.

On inflation, Powell noted that US inflation has fallen from its peak in mid-2022 but remains above the 2% target. Data show that as of February, the overall PCE price index increased 2.8% year-over-year, and core PCE (excluding volatile food and energy) rose 3.3%. Part of the high reading reflects tariff-related increases in goods inflation.

He added that inflation expectations indicators have risen in recent weeks, possibly reflecting oil price volatility, but long-term expectations remain broadly consistent with 2%. The median inflation forecast is 2.7% this year and 2.2% next year, slightly above December’s projections.

Powell said,

“The impact of Middle East tensions on the US economy remains uncertain. In the short term, rising energy prices will push up overall inflation, but the scope and duration of this effect are still to be seen.”

The SEP shows FOMC members’ individual projections for the appropriate federal funds rate path, based on their economic outlooks. The median forecast indicates rates at 3.4% by year-end and 3.1% next year, roughly unchanged from December.

Powell emphasized that these individual forecasts carry uncertainties and do not represent the committee’s fixed plans. Monetary policy has no preset path; decisions will be data-dependent at each meeting.

In the Q&A, Powell reiterated that recent shocks have interrupted the progress made in fighting inflation. He stressed that without evidence of inflation improvement, rate cuts are off the table.

He said that current rates are near the boundary between restrictive and accommodative, and maintaining a modest restrictive stance is important. The Fed faces a tough balancing act with various risks. He also mentioned that the possibility of further rate hikes has been discussed, but most officials do not see this as the baseline scenario.

Regarding the highly watched issue of his tenure, Powell confirmed he will not resign during the investigation. He said that if his successor is not confirmed before his term ends, he will serve as interim chair to preserve the Fed’s independence from political interference.

Below is the Q&A transcript:

Q1: Some believe the Fed is “looking through” the rise in oil prices caused by Middle East conflict. Is this approach appropriate now? Also, inflation has been above target for about five years—how much does this influence the committee’s judgment?

Powell: First, I want to say we are very aware of inflation performance over the past few years. A series of shocks have interrupted our progress. The latest shock comes from tariffs, and future inflation will also be affected.

This year, our main focus is whether inflation can make progress, especially in reducing goods inflation. As tariff impacts are gradually absorbed into the system and economy, we hope to see this progress. That’s our top priority now. We need to see this progress before confirming real improvement. Overall, we haven’t made much progress. If you look at core inflation, it’s around 3%. A significant part—about 0.5 to 0.75 percentage points—is due to tariffs, and we are watching whether this will decline.

Regarding “looking through” energy inflation, that’s not really possible until we see the above progress.

Of course, traditional experience suggests ignoring energy shocks, but it depends on whether inflation expectations remain stable.

And considering the broader context—long-term inflation above target—we must factor all these elements in.

When it’s truly necessary to decide whether to “look through” energy inflation, we will do so cautiously, not lightly.

Q2: Regarding SEP, can you explain why most officials still lean toward rate cuts despite upward revisions in core inflation and unchanged growth and unemployment forecasts? What’s the rationale for rate cuts? Why are they considered necessary?

Powell: There are 19 committee members, each with their own views and independent forecasts.

But if you notice, the median forecast hasn’t changed. However, there have been some adjustments, mainly toward fewer rate cuts.

For example, four or five members have shifted from expecting two rate cuts to just one. Each has their own reasoning.

Overall, the key judgment is that inflation will continue to improve. Although the improvement may not be as large as previously expected, some progress is still anticipated. This should start to show around mid-year, mainly as tariff effects gradually pass through and inflation from tariffs begins to decline. We expect to see this.

Also, it’s important to note that the rate path projections depend on economic performance. If we do not see inflation improve, there will be no rate cuts.

Q3: The upward revision of 2026 inflation forecasts—was this entirely due to the recent oil price shock, or are there other factors?

Powell: That’s partly true. But you know, it’s not the main driver of core inflation. Oil shocks will be reflected in the data, and some will enter core inflation.

But it’s not just that. We haven’t yet seen the expected improvement in core goods inflation, including tariffs and other factors.

In any case, the upward revision in inflation forecasts is partly related to Middle East tensions and oil price changes.

It also reflects slow progress in tariff-related inflation. We still believe this progress will happen, but the question is how long it takes for these effects to fully transmit into the economy. That’s a process that takes time.

Q4: The SEP has not changed. Can you explain whether this is because you expect the transmission and dissipation of oil price shocks to be gradual, or because you’re concerned that stock market declines and rising oil prices will suppress consumption and economic growth—such as consumers shifting spending toward gasoline? Since rate forecasts haven’t changed, do you think oil shocks are temporary, or that economic growth might slow?

Powell: I want to emphasize that no one knows the outcome. The economic impact could be small or large—we truly don’t know.

People are simply making forecasts based on what they consider reasonable, but with no strong conviction.

As you said, if oil prices stay high for a long time, that could suppress consumption, disposable income, and overall spending. But we don’t know if that will happen. It’s also possible that the transmission of oil prices to inflation will be less than expected.

In this SEP, many even suggest that skipping a forecast might be appropriate, given the uncertainty.

I wouldn’t say there’s a clear view that these effects will dissipate quickly or persist. You have to make a forecast based on current information.

We also don’t argue about how long these effects will last or how big they will be, because those are very uncertain questions. Everyone makes their own forecast.

Moreover, if you’ve already made a forecast, you’re unlikely to revise it significantly unless new information emerges, because uncertainty is so high. The directional impact of this shock is very unclear.

Meanwhile, the US economy remains fundamentally resilient, with steady growth and inflation mainly driven by goods and tariffs.

Unemployment has been nearly unchanged since September last year. With demand and supply growth limited, the labor market’s balance still appears low.

Overall, the US economy is performing quite well. But we truly don’t know what the impact of this shock will be in the end. In fact, nobody does.

Q5: Past Fed statements noted that oil price increases impact consumption, but this effect is partly offset by increased domestic energy production. Can you discuss this dynamic? Specifically, how is US energy production currently?

Powell: First, the traditional, long-standing view is to “look through” energy shocks. As I mentioned, this presupposes stable inflation expectations, among other factors.

Yes, there is an “offset” effect. The US is now a net energy exporter. Rising oil prices’ negative impact on employment and spending is partly offset by higher profits for energy companies and increased drilling activity.

However, if oil companies are to increase drilling, they usually want to see oil prices stay significantly above pre-war levels, and they need confidence that this higher level will persist for a considerable time.

They won’t start large-scale drilling just because oil prices briefly exceed $70 per barrel. They will make a rational judgment that prices will stay higher over the long term, and that the increase is “meaningfully higher.”

If the increase doesn’t reach that level, the change won’t be substantial; but if it does, over time, some additional activity is likely.

Overall, this oil price shock’s net effect will still exert some downward pressure on consumption and employment, while also pushing inflation upward.

Q6: If the Fed “ignores” tariff-induced inflation while inflation remains persistently above target, and also “ignores” oil price shocks, how worried are you that this could undermine public confidence and credibility in the Fed’s commitment to the 2% inflation goal?

Powell: We must analyze these issues carefully. It’s always on our minds.

We are very aware of historical experience. You can’t overreact to these shocks, but you must also base decisions on facts and do your best.

I don’t think we will let these issues overly influence our policy decisions.

More broadly, this is the fifth year of ongoing shocks. We’ve experienced tariff impacts, pandemic shocks, and now some scale and duration of energy shocks. We don’t yet know how big or how long this last.

The problem is that these shocks are recurring. You worry that repeated shocks could destabilize inflation expectations. That’s why we pay close attention.

We are committed to doing everything necessary to keep inflation expectations anchored at 2%. I think that’s extremely important.

Q7: If housing service inflation remains above target, and the economy overall still performs well, what gives you confidence that inflation can return to the target in the coming years?

Powell: Well, I’d say that the current rate level can be seen as “high end of the neutral range,” or “slightly restrictive,” or “mildly tight.” But no one can be very certain.

Overall, much of the expected inflation decline comes from the gradual fading of tariff impacts.

After tariffs are implemented, prices rise to some extent, and consumers bear this one-time cost. We are waiting for this process to complete. It takes about 8, 9, 10, or even 11 months—almost a year—for these effects to fully transmit into the economy.

We are waiting for the tariff impacts from mid- to late last year to fully pass through. Then, goods inflation will return closer to historical norms. For many years, goods inflation was actually negative; about zero a year before tariffs, now around 2%. So current goods inflation is about 2%.

This inflation isn’t driven by the traditional Phillips curve mechanism or purely by tight monetary policy. It’s more a process of one-time shocks gradually fading.

Of course, we believe maintaining policy at a “slightly restrictive” or near that level is important. But we shouldn’t tighten too much, given downside risks to the labor market.

We are balancing two goals: on one hand, labor market downside risks suggest lowering rates; on the other, upside inflation risks suggest not cutting.

It’s a difficult situation. We think the current policy framework requires balancing these risks. We are roughly in a “slightly restrictive” zone, which we consider appropriate.

Q8: Regarding housing, some feel that inflation has not declined significantly over the past year. If wages and labor markets are easing, why hasn’t housing inflation slowed?

Powell: That’s a good question, and it’s somewhat frustrating.

Non-housing services inflation has been roughly flat over the past year, staying at about the same level. We expected it to decline, but it’s been affected by various idiosyncratic factors.

Meanwhile, this was an area where we expected improvement. As you said, the labor market is no longer a major source of inflation pressure. This should have an impact on non-housing services inflation, but we haven’t seen much progress yet.

For this year, we expect housing services inflation to continue improving; goods inflation to decline as tariff effects fade; and non-housing services inflation to provide some downward pressure. That’s what we hope to see.

As for why there wasn’t more progress last year, that’s a question worth pondering.

Q9: Last December, employment data was revised downward by 17,000, and January and February revisions also showed declines. Do you think employment risks are now more significant than inflation risks? PCE inflation has already eased somewhat.

Powell: I wouldn’t say that. I don’t think we can clearly say which risk is greater.

You can see that the unemployment rate has been stable. Over the past year, due to immigration policies and other factors, labor supply and demand have both declined significantly. In this context, it’s more meaningful to look at ratios or other indicators. For example, the unemployment rate has remained steady since September last year.

From an inflation perspective, core inflation is about 3%, and overall inflation around 2.8%. That means we’ve been well above the 2% target for some time—about 0.7 to 1 percentage point higher.

That’s a real concern. We need to bring inflation below 2% and focus on that goal. Despite new inflation pressures from energy, it’s hard to say which risk is more significant.

Q10: What happens if no new Fed chair is confirmed before May 15? Will you stay on?

Powell: If my successor isn’t confirmed before my term ends, I will serve as “acting chair” until a new chair is confirmed. That’s the law. We’ve done this before (including myself), and we will do so again.

Also, regarding the investigation, I have no plans to leave the Board before the investigation is complete, transparent, and conclusive. Please refer to the Fed’s previous statements; you’ve seen them. I have nothing more to add.

As for whether I will stay on as a director after my term ends and the investigation concludes, I haven’t decided yet. I will decide based on what’s best for the institution and the public we serve.

I expect you’ll ask about this again, but I won’t comment further.

Q11: Some compare current conditions to historical episodes, such as past oil shocks. Do you think the Fed’s response to growth risks can be analogous to history? To what extent do you agree? And in what ways is the current situation different?

Powell: It’s hard to draw conclusions before seeing the actual data.

In some cases, such comparisons may be appropriate. For example, if we see the kind of inflation progress I mentioned earlier—where tariffs’ effects fade—then the situation could differ.

But overall, it’s difficult to generalize. Much depends on the scale and duration of price impacts, as well as changes in inflation expectations.

Q12: Regarding the Labor Department (BLS) report, your forecasts and comments suggest your assessment of the labor market still largely depends on supply-side changes, not much affected by the negative February employment data. Is that accurate? Also, did anyone in the meeting express concern about the February employment report?

Powell: I think it’s best to look at January and February together. In a sense, January was a positive surprise, and February a negative one. Combining them, the result is roughly in the middle.

You also need to consider factors like strikes and weather, which explain about 80,000 of the February decline. Excluding these, many indicators still show the labor market remains relatively stable.

However, a significant portion of the committee is concerned about the very low level of job growth.

If you look at the six-month trend and adjust for potential overcounting, private-sector net employment growth is nearly zero.

In some ways, that’s actually what the economy needs—labor supply has hardly grown. That’s unprecedented in US history. So, you see a “zero employment growth” equilibrium.

In a sense, it’s a balance. But frankly, this balance carries downside risks and isn’t very reassuring. We are paying close attention and understand this logic. Everyone recognizes the arithmetic: the “break-even” point is roughly zero.

Still, it’s a situation we are watching carefully and are concerned about. From another perspective, it’s partly a policy choice—mainly influenced by changes in immigration policy, which is the biggest factor. But regardless, it’s something we will continue to monitor.

Q13: Over recent years, the US has faced supply shocks from the pandemic, tariffs, and oil price shocks. Do you see this as “bad luck,” or has the world changed in a way that makes supply shocks more frequent? Should central banks treat supply shocks as a more common issue?

Powell: We’ve experienced a long period mainly characterized by demand shocks. Over the past four or five years, we’ve gained a lot of experience in responding to supply shocks.

Supply shocks are much more complex. They immediately create tension between our dual mandates. As for whether the world has changed—pandemics are one-off events, right?

The current energy supply shocks are also one-offs. I don’t see them as part of a broader trend. The oil price shocks from Ukraine are essentially due to military conflict.

I’m not sure the world has fundamentally changed to cause more frequent supply shocks. Many have written papers and given speeches arguing this point.

But one fact remains: in the past five years, we’ve experienced more supply shocks than in many previous years.

Q14: Last year, you said the Fed was evaluating communication strategies, including SEP, as part of policy framework review. How has that progressed? If given the chance, what changes would you make to communication?

Powell: There hasn’t been much progress on that. I can explain why.

We’ve seriously considered SEP and overall communication approaches, but no single plan has gained broad support within the committee.

And in terms of communication strategy, you shouldn’t change without broad committee backing. So, we haven’t made substantive adjustments.

I personally hoped to push some changes, but those ideas didn’t gain enough support. We’ve completed adjustments to the policy framework itself, which is the most important part.

So, we haven’t advanced communication changes. Honestly, I wish we had made some adjustments at the time, but it didn’t happen. Perhaps the next chair will revisit this issue—I believe they will.

Q15: Some members have proposed adding “two-sided guidance” to policy communication. Was this discussed at today’s meeting? How supportive are you of such “dual guidance” in the context of rising inflation expectations?

Powell: That was indeed discussed today. The possibility of “next steps” involving rate hikes was discussed at this meeting and also at the last. But most participants do not see this as their baseline.

We don’t exclude any options. Your description is accurate—as reflected in the minutes, some members expressed similar views, and such discussions did occur.

Q16: Beyond oil prices, many other commodities are affected by trade shocks and supply chain disruptions. How concerned are you that this could become an inflation problem beyond oil? Given monetary policy limitations, does the Fed have the capacity or willingness to respond?

Powell: You can certainly worry about other commodities and supply chain transmission channels.

But the reality is, these are beyond our control. Like others, we can only wait and see how the situation develops. The key questions are: how long will these conditions last, and how will they influence prices and consumer reactions?

We need to observe these developments. I won’t speculate too much. Aside from watching and waiting, there’s little else we can do.

Q17: You mentioned earlier that long-term inflation expectations relate to public confidence in returning inflation to 2%. Some colleagues also note that divergence in inflation expectations among households, service providers, and firms is growing, which could mean expectations are less stable than in the past. Did this issue come up in today’s meeting? How does the committee view current inflation expectations and the risks from oil price increases?

Powell: Several participants noted, and staff reported, that short-term inflation expectations have risen sharply, and we understand the reasons behind this.

As for long-term expectations, you can always find some indicator or segment that looks worrisome.

But overall, during this period, most indicators—including market measures, surveys, and professional forecasts—show that long-term expectations remain quite anchored at around 2%.

That’s still the case. There wasn’t much discussion on this in the meeting.

But I believe everyone agrees that we will monitor these indicators very closely, especially as price increases from conflicts gradually transmit into the economy.

Q18: Before this meeting, did the committee discuss the risk of “growth slowing but inflation remaining high”? Most members’ forecasts don’t seem to reflect a significant slowdown. Is there a discussion of “stagflation risk” at this stage?

Powell: Some members have slightly raised growth forecasts—by about 0.1 percentage points—possibly reflecting increased confidence in productivity.

Regarding stagflation risk, there is indeed tension between two goals: inflation on the upside, and employment on the downside. This puts us in a somewhat unusual environment.

But when I use the term “stagflation,” I must note that it originally described the 1970s. Back then, unemployment was in double digits, and inflation was very high—“pain index” was high.

That’s not the current situation. Unemployment is near its long-term normal level, and inflation is about 1 percentage point above target. Calling this “stagflation” isn’t appropriate. I reserve that term for much more severe conditions.

We face a situation with some tension between two goals. We are trying to balance in this environment. It’s a difficult situation, but it’s nowhere near the 1970s. I personally would reserve “stagflation” for that era—though that’s just my view.

Q19: Trump said that once the war ends, prices will quickly fall. Do you agree? US households have endured high prices for years, and now gasoline prices are up nearly $1 per gallon. Are you worried that low-income families will find it even harder to afford these increases? And some are preparing for food price hikes.

Powell: I don’t make predictions about that.

We don’t know how big these impacts will be. People are already feeling the pressure from gasoline prices rising toward $1 per gallon. We hope this situation won’t last long. It’s clear that people are feeling the strain.

But I don’t want to speculate on specific effects. Frankly, if I try to predict, it’s as if I already know what will happen. We need to observe how things develop. That’s all I’ll say.

Q20: To prepare for the next meeting, how will developments in the Middle East influence your decision-making? If oil prices stay above $100 per barrel before the next meeting, will that change your current policy stance? Under what circumstances would you act? Are you currently holding rates indefinitely steady?

Powell: We need to wait and see.

As we always say, we’ll get more information before the next meeting, and that’s usually the case. This time, we’ll have a lot of new data. There are six weeks until the next meeting.

The situation in the Middle East will significantly influence economic performance and outlook. It’s a key factor. We’ll understand more then. But I don’t know how it will affect our judgment now—I truly don’t.

We’ve discussed different scenarios in the meeting, but I won’t go into detail here. The uncertainty is very high.

I want to emphasize that we don’t know the outcome. We shouldn’t assume a particular direction. We can only wait and see.

Q21: Does this mean you don’t know how the situation will develop, or that even if the situation remains as is, the economy could still stay resilient?

Powell: That’s also true. The US economy has… faced many challenges, but overall, it remains strong.

Looking back at 2022 and 2023, when we raised rates sharply, nearly 100% of economists predicted a recession, but it didn’t happen. 2023 was actually very strong.

So, after all these major changes, the US economy has performed quite well. It’s surprising.

I don’t know what will happen in the period before the next meeting, or how the Middle East situation will evolve. I won’t speculate.

Q22: What makes you think tariff-related price increases are just one-off impacts? I haven’t seen you since the Supreme Court ruling on tariffs. Nobody knows how big the shock will be if tariffs are overturned. What makes you believe tariffs are only temporary price effects?

Powell: I wouldn’t say I’m certain. I have some uncertainty.

Basically, tariffs are a one-time price increase for certain goods, right? Inflation, on the other hand, involves prices rising continuously this year, next year, and beyond—that’s inflation. It’s not a one-off. There’s a big difference, though the public often doesn’t see it that way. That’s the key distinction.

Theoretically, tariffs should be a one-time impact. Unless they lead to expectations of more tariffs next year or the year after, they should be a typical one-off shock. The same logic applies to energy prices.

Usually, prices rise and then fall back. When monetary policy takes effect, these shocks tend to have already passed.

So, I don’t have high confidence in this. I think the theory holds. But, as always, how long these effects take to transmit through the economy is very uncertain. We saw this after the pandemic. Inflation did decline, largely for the reasons we initially judged, but it took two more years than expected.

Therefore, we must remain humble about how long tariff impacts take to fully transmit.

Our current approach is that staff are actively researching this—it’s quite interesting. Initially, we could only estimate because of limited historical experience.

As we observe more about how tariffs transmit into prices, a clearer picture has emerged. For most tariffs, we can say we are somewhat more confident that “tariffs’ inflation effects will gradually decline.” Note: this refers to inflation easing, not prices falling. We expect to see this more clearly by mid-year.

You’re right: after the Supreme Court ruling, tariffs did decline noticeably. But the government has announced it will gradually restore tariffs to previous levels. So, our assumption is that tariffs will be gradually reinstated over time.

That’s our current view.

Q23: You mentioned the limitations of SEP. I’d like to ask again, especially during the transition period: Is it still valuable for the public to understand the views of other Fed officials—particularly those who will remain in office this year and beyond? Also, does this influence your successor’s decision-making? For example, if the entire committee expresses different views, could that “lock in” their policy paths this year?

Powell: No, absolutely not. Everyone in SEP can revise their “dot plots” at any time. These forecasts are not binding. They are just individual judgments at a point in time, which can change quickly as events unfold.

They never “lock” anyone in. Everyone is eager to be right or wrong, whichever the case.

So, I think we should continue publishing these forecasts. As I mentioned, at this stage, it’s quite challenging. During the pandemic, we once didn’t publish SEP at a meeting, but we didn’t want to stop altogether because it’s important to keep transparency.

However, I must say that this time, the uncertainty around forecasts is higher than usual. They should be interpreted cautiously, not overemphasized.

Q24: You mentioned that long-term inflation expectations relate to public confidence in returning inflation to 2%. Some colleagues also note that divergence in inflation expectations among households, service providers, and firms is growing, which could mean expectations are less stable than before. Did this come up in today’s meeting? How does the committee view current inflation expectations and the risks from rising oil prices?

Powell: Several participants noted, and staff reported, that short-term inflation expectations have risen sharply, and we understand the reasons.

As for long-term expectations, you can always find some indicator or segment that looks concerning.

But overall, most indicators—including market measures, surveys, and professional forecasts—show that long-term expectations remain quite well anchored around 2%.

That’s still the case. There wasn’t much discussion on this today.

But I believe everyone agrees we will monitor these indicators very closely, especially as price increases from conflicts gradually transmit into the economy.

Q25: Before this meeting, did the committee discuss the risk of “growth slowing but inflation remaining high”? Most members’ forecasts don’t seem to reflect a significant slowdown. Is there a discussion of “stagflation risk” at this stage?

Powell: Some members have slightly raised growth forecasts—by about 0.1 percentage points—possibly reflecting increased confidence in productivity.

Regarding stagflation risk, there is indeed tension between two goals: inflation on the upside, and employment on the downside. This puts us in a somewhat unusual environment.

But when I use the term “stagflation,” I must note that it originally described the 1970s. Back then, unemployment was in double digits, and inflation was very high—“pain index” was high.

That’s not the current situation. Unemployment is near its long-term normal level, and inflation is about 1 percentage point above target. Calling this “stagflation” isn’t appropriate. I reserve that term for much more severe conditions.

We face a situation with some tension between two goals. We are trying to balance in this environment. It’s a difficult situation, but it’s nowhere near the 1970s. I personally would reserve “stagflation” for that era—though that’s just my view.

Q26: Trump said that once the war ends, prices will quickly fall. Do you agree? US households have endured high prices for years, and now gasoline prices are up nearly $1 per gallon. Are you worried that low-income families will find it even harder to afford these increases? And some are preparing for food price hikes.

Powell: I don’t make predictions about that.

We don’t know how big these impacts will be. People are already feeling the pressure from gasoline prices rising toward $1 per gallon. We hope this situation won’t last long. It’s clear that people are feeling the strain.

But I don’t want to speculate on specific effects. Frankly, if I try to predict, it’s as if I already know what will happen. We need to observe how things develop. That’s all I’ll say.

Q27: I’d like to ask about preparing for the next meeting. How will developments in the Middle East influence your decision-making? If oil prices stay above $100 per barrel before the next meeting, will that change your current policy stance? Under what circumstances would you act? Are you currently holding rates steady indefinitely?

Powell: We need to wait and see.

As we always say, we’ll get more information before the next meeting, and that’s usually the case. This time, we’ll have a lot of new data. There are six weeks until the next meeting.

The situation in the Middle East will significantly influence economic performance and outlook. It’s a key factor. We’ll understand more then. But I don’t know how it will affect our judgment now—I truly don’t.

We’ve discussed different scenarios in the meeting, but I won’t go into detail here. The uncertainty is very high.

I want to emphasize that we don’t know the outcome. We shouldn’t assume a particular direction. We can only wait and see.

Q28: Does this mean you don’t know how the situation will develop, or that even if the situation remains as is, the economy could still stay resilient?

Powell: That’s also true. The US economy has… faced many challenges, but overall, it remains strong.

If you look back at 2022 and 2023, when we raised rates sharply, nearly 100% of economists predicted a recession, but it didn’t happen. 2023 was actually very strong.

So, after all these major changes, the US economy has performed quite well. It’s surprising.

I don’t know what will happen in the period before the next meeting, or how the Middle East situation will evolve. I won’t speculate.

Q29: What makes you think that tariff-related price increases are just one-off impacts? I haven’t seen you since the Supreme Court ruling on tariffs. Nobody knows how big the shock will be if tariffs are overturned. What makes you believe tariffs are only temporary price effects?

Powell: I wouldn’t say I’m certain. I have some uncertainty.

Basically, tariffs are a one-time price increase for certain goods, right? Inflation, on the other hand, involves prices rising continuously this year, next year, and beyond—that’s inflation. It’s not a one-off. There’s a big difference, though the public often doesn’t see it that way. That’s the key distinction.

Theoretically, tariffs should be a one-time impact. Unless they lead to expectations of more tariffs next year or the year after, they should be a typical one-off shock. The same logic applies to energy prices.

Usually, prices rise and then fall back. When monetary policy takes effect, these shocks tend to have already passed.

So, I don’t have high confidence in this. I think the theory holds. But, as always, how long these effects take to transmit through the economy is very uncertain. We saw this after the pandemic. Inflation did decline, largely for the reasons we initially judged, but it took two more years than expected.

Therefore, we must remain humble about how long tariff impacts take to fully transmit into the economy.

Our current approach is that staff are actively researching this—it’s quite interesting. Initially, we could only estimate because of limited historical experience.

As we observe more about how tariffs transmit into prices, a clearer picture has emerged. For most tariffs, we can say we are somewhat more confident that “tariffs’ inflation effects will gradually decline.” Note: this refers to inflation easing, not prices falling. We expect to see this more clearly by mid-year.

You’re right: after the Supreme Court ruling, tariffs did decline noticeably. But the government has announced it will gradually restore tariffs to previous levels. So, our assumption is that tariffs will be gradually reinstated over time.

That’s our current view.

Q30: You mentioned the limitations of SEP. I’d like to ask again, especially during the transition period: Is it still valuable for the public to understand the views of other Fed officials—particularly those who will remain in office this year and beyond? Also, does this influence your successor’s decision-making? For example, if the entire committee expresses different views, could that “lock in” their policy paths this year?

Powell: No, absolutely not. Everyone in SEP can revise their “dot plots” at any time. These forecasts are not binding. They are just individual judgments at a point in time, which can change quickly as events unfold.

They never “lock” anyone in. Everyone is eager to be right or wrong, whichever the case.

So, I think we should continue publishing these forecasts. As I mentioned, at this stage, it’s quite challenging. During the pandemic, we once didn’t publish SEP at a meeting, but we didn’t want to stop altogether because it’s important to keep transparency.