“The tendency is to look through any kind of a supply shock,” Powell told a Harvard University event.
This is because “energy shocks have tended to come and go pretty quickly”, but monetary policy changes take time to flow through the economy, he said.
His comments come after US-Israeli strikes on Iran on February 28 triggered Tehran’s retaliation that sharply restricted access to the Strait of Hormuz.
The waterway is a critical shipping route for energy resources, and the situation has caused global oil prices to rocket as the war stretches into a fifth week.
Around a fifth of global crude oil and liquefied natural gas passes through the strait in peacetime.
US petrol prices have surged, threatening higher inflation in the world’s biggest economy.
For now, Powell said, “we feel like our policy is in a good place for us to wait and see how that turns out.”
He stressed that “inflation expectations do appear to be well-anchored beyond the short term.”
But he acknowledged that supply shocks can lead the public to start expecting persistently higher prices.
The Fed faces “tension” between its two objectives of stable prices and low unemployment, Powell said, and there are currently both risks of higher inflation and a weakening labour market.
Asked about the risks of another financial crisis, Powell said the United States has “significantly hardened” its system since the 2008 global financial crisis.
While officials should not try to “regulate risk out of existence,” he flagged the need for maintaining the financial system’s resilience.
He added that policymakers are closely monitoring areas like private credit.
As Powell’s term as Fed chair expires in May, he also maintained that the bank “needs to be fully politically independent” and not reactive to politics.
The chair, he added, ought to be “a person who can be reappointed by either side.” (AFP)
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