- Powell said that the war in Iran would increase inflation in the near term.
- Powell also said it was “frustrating” that services inflation had stayed high even as tariffs pushed up goods inflation.
- U.S. stock markets declined sharply after the comments, with the Dow Jones Industrial Average falling to its lowest level this year.
Federal Reserve Chair Jerome Powell said on Wednesday that the increase in oil prices due to the war in Iran, and President Trump’s tariffs, would impact inflation.
In his remarks after the Fed's policy meeting, Powell said that the Middle East conflict would increase inflation in the near term. “Near-term measures of inflation expectations have risen in recent weeks, likely reflecting the substantial rise in oil prices caused by the supply disruptions in the Middle East,” he said.
Powell also noted the jump in goods inflation due to tariffs, adding that energy price increases would not stoke inflation in isolation.
U.S. stock markets declined sharply after the comments. The Dow Jones Industrial Average fell by over 750 points, or 1.7%, to its lowest level this year. Meanwhile, the S&P 500 lost more than 87 points or 1.3% to trade around 6,629.56 at the time of writing.
Inflation Insights
The Fed chair noted that while higher energy prices will push up inflation in the near term, it was too soon to know the scope and duration of the potential effects on the economy.
"Inflation is ongoing increases in prices this year, next year, the year after. That is what inflation is. It is not a one-time price increase," Powell said in response to a question.
“The thing that’s really important that we see this year is progress on inflation through a reduction in goods inflation as the one-time effects on prices of tariffs go through the system, go through the economy. That’s the main thing we’re looking for,” he added.
Powell also said it was “frustrating” that services inflation had stayed high even as tariffs pushed up goods inflation.
“For many, many years it was negative, and it’s running at like 2% percent now,” he said. “We’re in a difficult situation,” he added, also saying that the Fed had to stay “humble” about knowing how long it will take for tariffs to go all the way through the economy.
Fed Chair Status
Commenting on his term as the central bank’s leader, Powell said he would continue in his position if the successor is not confirmed by May, when his chair term is slated to end.
He also said he has "no intention" of stepping down from the Fed's board until the Justice Department investigation is "well and truly over, with transparency and finality.”
Meanwhile, U.S. equities declined on Wednesday at the time of writing. The SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 1.4%, the Invesco QQQ Trust ETF (QQQ) fell 1.39%, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 1.68%.
Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘extremely bearish’ territory.
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