Federal Reserve Chairman Jerome Powell said in a wide-ranging speech at Harvard University on Monday that he sees inflation expectations as well-founded despite rising energy prices, meaning the central bank does not need to respond with higher interest rates.
As his tenure at the helm of the central bank neared its end, Powell avoided questions about the longer-term direction of interest rates or biases that his designated successor has represented.
In the short term, the right move is to look beyond the short-term fluctuations of the energy market and focus on the Fed’s goals of stable prices and low unemployment, he said.
“Inflation expectations appear to be well anchored beyond the near term, but nonetheless we may at some point be faced with the question of what to do here,” he said during a question-and-answer session with a moderator and students. “We haven’t really faced this yet because we don’t know what the economic impact of this will be, but we will definitely take that broader context into account when we make that decision.”
As he has in the past, Powell said he believes the current interest rate target, which is in a range of 3.5% to 3.75%, is “a good place” for the Fed as it monitors current events, including the Iran war and the impact of tariffs on prices.
Federal Reserve Chairman Jerome Powell during a moderated conversation at Harvard University in Cambridge, Massachusetts, USA, on Monday, March 30, 2026.
Mel Musto | Bloomberg | Getty Images
The comments appeared to resonate in financial markets as traders no longer priced in a significant chance of a rate hike this year. As recently as Friday morning, markets were counting on a more than 50% chance of a quarter-point increase amid expectations that the Fed would respond to rising energy costs. However, the probability of a rate hike by December fell to 2.2% after Powell’s appearance.
Powell said raising interest rates now could have a negative impact on the economy later. He noted that the Fed’s rate hikes had a delayed impact on the economy, so tightening here would not counteract the inflationary effects of the Iran war.
“By the time the effects of monetary tightening take effect, the oil price shock is likely to be long gone and you are putting pressure on the economy at a time when that is not appropriate. So the tendency is to overlook any kind of supply shock,” he added.
Market-based measures such as breakeven rates in Treasury yields suggest there is little fear of a rise in inflation. Breakevens measure the difference between Treasury bonds and inflation-indexed securities. The five-year breakeven rate was recently around 2.56% and has been trending downward over the past 10 days.
Powell’s term ends in mid-May and President Donald Trump has named former Gov. Kevin Warsh as the next chairman. However, Warsh’s nomination is being held up in the Senate Banking Committee as U.S. Attorney Jeanine Pirro continues her investigation into renovations at the Fed’s headquarters.
Although a judge rejected a subpoena from Pirro’s office to Powell, she appealed the decision. While the case is being argued, Sen. Thom Tillis, R-N.C., has vowed to block the nomination from being accepted.
Warsh, for his part, has stated that he prefers lower interest rates than current levels. When asked to comment on his successor’s plans, Powell said: “I will not impose myself on this issue.”
On private credit, Powell pointed to rising defaults, investor withdrawals and concerns about broader problems in the $3 trillion sector.
“I’m hesitant to say anything that suggests we’re averse to risk, but we’re looking for connections to the banking system and things that could lead to contagion. We’re not seeing that at the moment,” he said. “We see that a correction is underway, and certainly there will be people losing money and things like that. But it doesn’t seem to have the makings of a broader systemic event.”
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