By Nick Timiraos

Federal Reserve Chair Jerome Powell said Monday the central bank is inclined to hold rates steady and look past the energy shock from the war in Iran but cautioned that it might not be able to sit on the sidelines if rising prices begin to shift the public's expectations about inflation over time.

Powell said energy disruptions have historically been short-lived and that the standard central-banking response is to wait them out. But he said the Fed couldn't take that for granted after years of elevated inflation, and that officials would be watching closely for any signs the public is starting to expect persistently higher prices.

"We feel like our policy is in a good place to see how that turns out," Powell said during a question-and-answer session with undergraduate students at Harvard University's introductory economics course.

The appearance comes at an extraordinary moment for the Fed and for Powell personally. His term as chair expires May 15, and the Senate has yet to schedule a confirmation hearing for Kevin Warsh, the former Fed governor whom President Trump named in January as his pick to succeed Powell. Sen. Thom Tillis, a Republican from North Carolina, has vowed to block Warsh's confirmation until a Justice Department investigation of Powell concludes.

Powell said earlier this month he would stay on as "chair pro tempore" if no successor is confirmed by then, and that he wouldn't leave the board until the probe ends.

The Fed held rates steady at its meeting on March 18, voting 11-1 to keep the federal-funds rate in a range of 3.5% to 3.75%. Fed governor Stephen Miran, a Trump appointee, was the lone dissenter in favor of a cut.

After the meeting, Powell poured cold water on projections submitted by his colleagues that suggested the Fed could cut rates later this year by suggesting those projections were highly conditional on inflation resuming progress toward the Fed's goal after making very little headway since last summer.

The central bank's task has been complicated by a new energy shock stemming from the war in Iran, which has disrupted shipping through the Strait of Hormuz and threatens to again snarl global supply chains. The Fed's preferred gauge of underlying inflation was already moving higher this winter before the geopolitical shock.

Over the last two weeks, Powell's colleagues have amplified the message that the era of benign rate cuts -- reductions the Fed could justify simply as unwinding its prior tightening -- is over. Instead, they have signaled the Fed is likely to leave rates where they are until either the labor market shows signs of outright deterioration or inflation declines. The prospect of a sharp rise in energy prices means the latter condition is unlikely to be met soon.

Taken together, the shift amounts to a significantly higher bar for rate cuts than existed even a few months ago -- and one that could complicate Warsh's task of delivering the cuts that Trump expects once he is confirmed.

Write to Nick Timiraos at Nick.Timiraos@wsj.com

(END) Dow Jones Newswires

March 30, 2026 11:02 ET (15:02 GMT)

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