Fed Monitoring Energy Price Rises, But Powell Sees Limits on Action

Federal Reserve Chair Jerome Powell says it's important to closely monitor inflation amid a spike in energy prices from the Iran war as the average price for gasoline nears $4 a gallon in the U.S. But he also said Monday, addressing students at Harvard University, that the central bank is limited in what it can do to directly influence energy costs.

Powell acknowledged the toll that high gas prices are taking on American consumers and businesses, noting that the Fed is "very focused" on the issue. However, he emphasized that the central bank's primary tools, such as adjusting interest rates, are not well-suited to addressing supply-side shocks like the disruptions caused by the ongoing conflict in Iran.

"We don't have tools that are well-suited to addressing the very specific supply shocks that we're facing with energy prices and food prices," Powell said. "But we do have a job to do, and that is to ensure that we maintain price stability."

The Fed has been aggressively raising interest rates in an effort to cool inflation, which reached a 40-year high of 8.5% in March. Powell acknowledged that the central bank's actions could lead to a recession, but he said the risk of doing too little to rein in price pressures is greater than the risk of doing too much.

Despite the Fed's limitations in addressing energy price shocks, Powell said the central bank will continue to closely monitor the situation and its impact on the broader economy. He emphasized that the Fed is committed to using all of its tools to maintain price stability and support a strong and resilient labor market.

"We have to keep at it until the job is done," Powell said, referring to the Fed's efforts to bring inflation back down to its 2% target.

The Fed's next policy meeting is scheduled for June 14-15, and investors widely expect the central bank to raise interest rates by another 0.5 percentage points as it continues its aggressive campaign to curb inflation.