Powell’s Press Conference: No Rate Cuts Before Inflation Improves, Will Serve as Acting Chair if Necessary

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Key Points from Powell’s Press Conference:

1. Fed Holds Off on Rate Cuts, Possibility of Rate Hikes Re-enters Discussion: The Federal Reserve kept the target range for the federal funds rate unchanged at 3.5%-3.75%. Powell explicitly stated that rate cuts would not be considered until further improvement in inflation is seen; meanwhile, discussions have begun within the Committee about “whether the next move could be a rate hike,” although this is still not the base-case scenario assumed by most officials.

2. Tariffs and Energy Are Creating a “Double Shock” on Inflation. Powell pointed out that the process of inflation cooling has clearly slowed recently, and short-term inflation expectations have risen again in recent weeks. Price pressures from tariffs are still feeding into core inflation, while rising oil prices due to the Middle East situation are adding new upside risks. A significant decline in goods inflation may not occur until at least mid-year.

3. Labor 시장 Appears Stable on Surface, but Downside Risks Are Accumulating. Powell acknowledged that job growth is already at a low level. Against the backdrop of slowing labor supply, the “balance” in the job market itself carries a degree of fragility. Meanwhile, the energy shock not only pushes up prices but could also have negative ripple effects on employment and overall economic activity by suppressing consumption, squeezing corporate costs, and disrupting supply chains.

4. Energy Crisis Escalates, International Oil Prices Rise Sharply. The war in Iran has led to attacks on multiple energy facilities, and the Strait of Hormuz faces a blockade threat. Market concerns about crude oil supply disruptions have rapidly intensified, with Brent crude once breaking above $107. Powell emphasized that it remains difficult to judge how long this shock will last and how significant its impact will be, but its potential impact on the U.S. and global economies should not be underestimated.

5. AI Has Not Yet Significantly Boosted Productivity at the Macro Level; In the Short Term, It May Instead Push Up the Neutral Rate. Powell stated that the productivity improvements seen so far cannot be attributed to generative AI, as its effects will take many years to be confirmed. Conversely, the current large-scale data center construction is boosting demand for goods and services, which could both increase inflationary pressures and raise the neutral interest rate.

6. Powell Confirms He Will Not Leave the Fed During the Investigation Period, Will Continue to Serve as “Acting Chair” if Necessary. He said he has no plans to resign from the Board of Governors until the investigation is complete, the process is transparent, and the conclusions are clear; if a successor is not confirmed by the end of his term as Chair, he will continue to serve as Acting Chair in accordance with the law until a new Chair is formally in place, to ensure the Fed’s operations and independence are not subject to political interference.

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

In his opening remarks, Powell said the U.S. employment situation is generally stable, the job market remains robust, and the unemployment rate is low, but inflation remains elevated. He believes the current monetary policy stance is conducive to promoting maximum employment and the 2% inflation target. He stated that the impact of developments in the Middle East on the U.S. economy remains uncertain.

Powell said,

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

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

On employment, Powell said, U.S. job growth has slowed. The slowdown in employment growth over the past year largely reflects a decline in labor supply growth, related to reduced immigration and a decline in labor force participation, while labor demand has also weakened. Other indicators, including job openings, layoffs, hires, and nominal wage growth, have generally changed little in recent months. In the SEP, the median unemployment rate forecast is 4.4% by the end of this year, declining slightly thereafter.

On inflation, Powell said U.S. inflation has declined from its mid-2022 peak, but remains elevated relative to the 2% target. Data shows that as of February, the headline PCE price index rose 2.8% year-over-year, while core PCE, excluding volatile food and energy, rose 3.3%. The higher readings partly reflect rising goods inflation influenced by tariffs.

He said, Recent inflation expectation indicators have risen in recent weeks, likely reflecting the impact of oil price volatility, while long-term inflation expectations remain broadly consistent with the 2% target. The median inflation forecast is 2.7% for this year and 2.2% for next year, both slightly higher than the December forecast.

Powell said,

The impact of the Middle East situation on the U.S. economy remains uncertain. In the short term, rising energy prices will push up headline inflation, but the scope and duration of its economic impact remain to be seen.

In the SEP, FOMC participants provided their assessments of the appropriate path for the federal funds rate based on their individual economic outlooks. The median projection shows the rate at 3.4% by the end of this year and 3.1% by the end of next year, essentially unchanged from December.

Powell said, as always, these individual projections are uncertain and do not represent the Committee’s predetermined plan or decisions. Monetary policy is not on a preset course; the Fed will make decisions meeting-by-meeting based on the data.

In the subsequent Q&A session, Powell stated that a series of shocks have interrupted the progress the Fed had previously made in fighting inflation. He emphasized that if improvement in inflation is not seen, then rate cuts will not occur.

He said interest rates are currently near the borderline between restrictive and non-restrictive territory, and maintaining a mildly restrictive stance is important. The Fed is in a difficult situation, needing to balance various risks. He also said the possibility of the next move being a rate hike has indeed been mentioned, though most officials do not consider this to be the base case.

Regarding the closely watched question of his tenure, Powell confirmed he will not leave during the investigation. He said if a successor is not confirmed, he will continue to serve as Acting Chair after his term as Chair ends, striving to protect the Fed’s independence from political interference.

The following is the Q&A session from Powell’s press conference:

Q1: There is a view that the Fed would “look through” oil price increases caused by the Middle East conflict. At this point, is such an approach appropriate? Also, to what extent has inflation being above target for about five years influenced the Committee’s judgment?

Powell: First, I would say we are very aware of inflation performance over the past few years. A series of shocks have interrupted the progress we had made. The most recent shock came from tariffs, and now future inflation will also be affected to some extent.

One thing we are really focused on this year is whether we can make progress on inflation, particularly a decline in goods inflation. As the one-time price effects of tariffs gradually work their way through the system and the economy, we hope to see that progress. This is our primary focus right now. In this process, we need to see that progress to be confident we are indeed seeing improvement. Because overall, we haven’t actually made progress. If you look at overall core inflation, it’s around 3%. A significant portion of that, about 0.5 to 0.75 percentage points, is due to tariffs, and we are watching to see if that part will recede.

As for whether to “look through” energy inflation, that question isn’t really on the table until we confirm the progress mentioned above.

Of course, based on traditional experience, the typical choice in the face of an energy shock is to “look through” it. But that always depends on whether inflation expectations remain stable.

And the broader context you mentioned—inflation being above target for a long time—we have to take all these factors into account.

When it actually comes to deciding whether to “look through” energy inflation, we won’t make that decision lightly; we will handle it carefully within the context you described.

Q2: Regarding the SEP, could you help us understand why, with core inflation revised up and growth and unemployment forecasts largely unchanged, most officials still lean towards rate cuts? In other words, what is the logical basis for rate cuts? Why is there a need for cuts?

Powell: With 19 participants, there are 19 different views, 19 separate individual forecasts.

But if you notice, the median hasn’t changed. However, there have been some adjustments, and there has been a fairly noticeable shift towards “fewer rate cuts.”

For example, four or five participants moved from expecting two cuts to expecting one cut. Each has their own logic and reasoning behind it.

Overall, the core judgment is that our forecast is for inflation to continue improving. Although the improvement is not as large as previously expected, there will still be some progress. This progress should begin to show around mid-year, mainly as the effects of tariffs gradually work through and tariff-induced inflation starts to recede. We should be able to see that.

Also, it’s important to emphasize that the rate path projection is conditional on economic performance. If we don’t see that inflation improvement, then rate cuts won’t happen.

Q3: Is the upward revision to the 2026 inflation forecast entirely due to this oil price shock, or are there other factors?

Powell: That is certainly part of it. But you know, that wouldn’t be the main source of core inflation. The oil price shock will of course show up in the data, and some of it will feed into core inflation.

But it’s not just that. Another factor is that we haven’t seen the kind of improvement in core goods inflation that was previously expected, including tariffs and other related factors.

In any case, people revising up their inflation forecasts is indeed partly related to the Middle East situation and oil price changes.

At the same time, it also reflects the relatively slow progress we’ve seen on tariff-related inflation. We still believe that progress will occur; the question is just how long it takes for these effects to fully work through the economy. That itself is a process that takes time.

Q4: The SEP hasn’t changed; could you explain the reason again? Is it more because you expect the impact of the oil price shock to gradually work through and fade, or because you’re concerned that wealth effects from falling stock markets and rising oil prices could suppress consumption and growth, e.g., consumers shifting spending from other areas to gasoline? So, the unchanged rate forecast is because you think the oil shock is temporary, or because you think growth might start to slow?

Powell: I want to emphasize one point: nobody knows what the outcome will be. The economic impact could be small, or it could be very large; we really don’t know.

People are just making forecasts based on what they think is reasonable, but there isn’t strong conviction.

As you said, if oil prices remain at very high levels for an extended period, that would indeed suppress consumption, disposable income, and overall spending. But we don’t know if that will happen. It’s also possible that the pass-through from oil prices to inflation is less than expected.

In this SEP, quite a few people even mentioned that if there were a time to skip an SEP, this might be an appropriate time. Because we are truly uncertain.

I wouldn’t say people have a clear view that these effects will fade quickly or not fade quickly. You have to write down a forecast, but it’s just a fill-in based on current information.

We also don’t argue about how long these effects will last or how large they will be, because these questions themselves are difficult to judge. Everyone needs to submit their own forecast.

Also, if you’ve already written down a forecast previously, you typically don’t change it dramatically easily because the uncertainty is too high. The directionality of the current shock itself is very unclear.

Meanwhile, the underlying fundamentals of the U.S. economy are relatively robust, growth remains solid, and the inflation overshoot is mainly from goods and tariff factors.

Regarding the labor market, the unemployment rate has hardly changed since last September. With both demand and supply growth being limited, the equilibrium point in the job market still appears to be at a low level.

Overall, the U.S. economy is performing quite well. It’s just that we really don’t know what impact this shock will ultimately have. In fact, nobody knows.

Q5: The Fed has previously noted that rising oil prices hurt consumption, but this effect is partly offset by increased domestic energy production. Could you talk about this dynamic? In particular, what is the general situation of U.S. energy production currently?

Powell: First, the traditional, long-held view is that for energy shocks, the typical choice is to “look through.” As I mentioned earlier, this premise relies on stable inflation expectations and other factors.

The idea of “offsets” is correct. The U.S. is now a net energy exporter. The negative impact of rising oil prices on employment and economic spending is partly offset by increased profits for oil companies and more drilling activity.

However, if you ask oil companies whether they will increase drilling, they typically want to see a sustained increase in oil prices relative to pre-war levels, and they need to believe that increase will last for a considerable period.

They won’t start drilling heavily just because oil prices briefly broke above $70 per barrel. They will make a more rational judgment that prices will stay at higher levels for an extended period. And that increase needs to be “significantly higher.”

If it doesn’t reach that level, not much will change; but if it does, there will be some increase over time.

Overall, the net effect of such an oil price shock still exerts some downward pressure on consumption and employment, while of course also creating upward pressure on inflation.

Q6: If the Fed, on one hand, “looks through” tariff-induced inflation while inflation itself remains above target, and on the other hand chooses to “look through” the oil price shock, how concerned are you that this could undermine external confidence and credibility in the Fed’s commitment to the 2% inflation target?

Powell: We have to do the analysis carefully and think these issues through thoroughly. Of course, this is always in everyone’s consideration.

We are very aware of historical experience. You can’t overreact to it, but you must also make the best judgment possible based on the facts. I don’t think we would let this issue influence decisions beyond an appropriate degree.

The greater consideration is that this is already the fifth year. We’ve had the tariff shock, the pandemic shock, and now we have an energy shock of some size and duration. As for how large and long-lasting this shock will ultimately be, we don’t actually know yet.

The issue is that this is a series of recurring shocks. You worry that this recurring pattern could cause trouble for inflation expectations. So we are very attentive to this.

We are firmly committed to taking whatever actions are necessary to ensure inflation expectations remain well anchored at 2%.

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