Fed Boss Says Energy Price Surge Still Can Be Held, but U.S. Inflation Needs to Be Watched

Jerome Powell assessed that the surge in energy prices due to the war in the Middle East did not need to be immediately responded to with changes in monetary policy. (Wikimedia Commons - Federalreserve - Official portrait of Jerome H. Powell, Chair)

JAKARTA - US central bank chairman Jerome Powell believes that the surge in energy prices due to the war in the Middle East does not need to be immediately responded to with monetary policy changes. However, according to a report by Malay Mail quoting AFP, the US Central Bank or The Fed could move if the cost increase begins to change public inflation expectations.

Powell made the statement at an event at Harvard University, when the war that broke out after the United States and Israel's attack on Iran on February 28 continued to put pressure on the global energy market. The impact has been felt in the United States. Access to the Strait of Hormuz has been disrupted, oil prices have soared, and gasoline prices have risen.

The Fed boss said the US central bank does not usually rush to respond to supply shocks like this. According to Powell, energy turmoil often comes quickly and can subside quickly, while the impact of interest rate changes is only felt after some time.

For now, Powell said, Fed policy is still in a good enough position to wait and see. He also said that long-term inflation expectations have so far been maintained.

Even so, Powell did not rule out the risk of something bigger. He admitted that supply shocks could turn into a more serious problem if people started to believe that prices would stay high for a long time. If that happens, inflationary pressures will no longer stop at gas pumps or energy bills, but could spread more broadly to the economy.

According to Powell, the Fed is currently facing pressure from two directions. Inflation is at risk of rising, while the labor market could also weaken. This situation makes the US central bank's room for maneuver not simple.

Still according to Malay Mail, quoted Tuesday, March 31, the Fed boss also alluded to the risk of a new financial crisis. He said the US financial system is now much stronger than it was during the 2008 global crisis. Even so, the resilience of the system must still be maintained, including by monitoring sectors such as private credit.

Towards the end of his term in May, Powell also stressed that the US central bank must remain independent of politics. According to him, the Fed's leadership should be a figure that can be accepted by any party.

Jerome Powell said the Fed is currently choosing to wait while watching developments. However, he reminded, the US central bank could act if rising costs began to change public inflation expectations.