Federal Reserve Chairman Jerome Powell said in a wide-ranging speech at Harvard University on Monday that he believes inflation expectations are well-founded despite rising energy prices and that the central bank does not need to respond by raising interest rates.
As his term leading the central bank draws to a close, Mr. Powell sidestepped questions about the long-term direction of interest rates and what trends his appointed successor would support.
In the near term, he said, the appropriate move is to look beyond short-term fluctuations in energy markets and focus on the Fed’s goals of stable prices and lower unemployment.
“Inflation expectations seem to be firmly entrenched beyond the short term, but we may still end up facing the question of what to do here,” he said in a question-and-answer session with moderators and students. “We are not yet fully facing this issue as we do not know what the economic impact will be, but we will certainly consider the broader circumstances when making decisions.”
As in the past, Powell said he believes the Fed’s current interest rate target in the range of 3.5% to 3.75% is “an appropriate position” as it monitors ongoing events, such as the Iran war and the impact of tariffs on prices.
Federal Reserve Chairman Jerome Powell during a moderated conversation at Harvard University on Monday, March 30, 2026, in Cambridge, Massachusetts, USA.
Mel Musto | Bloomberg | Getty Images
The comments appear to have been reflected in financial markets, with traders no longer pricing in the possibility of a significant rate hike this year. As of Friday morning, the market was seeing a better than 50% chance of a quarter-point increase on expectations that the Fed would respond to rising energy costs. However, since Chairman Powell took over, the probability of a rate hike by December has dropped to 2.2%.
Chairman Powell said raising interest rates now could have a negative impact on the economy later. He noted that tightening here would not be able to reduce the inflationary impact of the Iran war, as the Fed’s interest rate movements have a lag in their impact on the economy.
“By the time monetary tightening takes effect, the oil price shock will probably be long gone, weighing on the economy at the wrong time, so we tend to ignore any supply shocks,” he added.
Market-based indicators such as break-even rates on government bond yields indicate there is little concern that inflation will spike. The break-even point measures the difference between U.S. Treasuries and inflation-protected securities. The break-even rate for the most recent five years has been approximately 2.56%, and has been on a downward trend over the past 10 days.
Chairman Powell’s term ends in mid-May, and President Donald Trump has nominated former Governor Kevin Warsh to be the next chairman. But Warsh’s nomination is on hold in the Senate Banking Committee as U.S. Attorney Jeanine Pirro continues her investigation into renovations at the Fed’s headquarters.
A judge threw out a subpoena issued to Powell by Pirro’s office, but she appealed the decision. During the hearing of the case, Sen. Thom Tillis (R.N.C.) vowed to block the nomination from passing.
Warsh said he would prefer lower interest rates than current levels. Asked to comment on his plans for his replacement, Powell said, “I’m not going to swing at that pitch.”
On private credit, Powell cited concerns about rising defaults, investor withdrawals and broader problems in the $3 trillion sector.
“I don’t want to suggest that we’re ignoring risks, but we’re looking for links to the banking system and anything that could cause contagion. We don’t see anything like that at this point,” he said. “What we’re seeing is a correction happening, and certainly there will be people losing money and things like that. But it doesn’t seem to have the elements to trigger a broader systemic event.”
