Federal Reserve Chair Jerome Powell said Monday that the central bank has not yet reached the point where it must decide how to handle economic shocks from the Iran war, telling economics students at Harvard that the Fed is content to hold steady for now.
"We're not really facing it yet because we don't know what the economic effects will be," Powell said. "We feel like our policy is in a good place for us to wait and see how that turns out."
The decision to "look through" a supply shock, in Fed parlance, means treating it as temporary and not warranting a policy response. Powell suggested that moment may come eventually, but conditions do not yet warrant a judgment call.
The broader economic setting matters greatly to any decision, Powell emphasized. Inflation has been trending downward since the pandemic ended, approaching the Fed's 2% target, though it has never quite settled there. That gives policymakers some flexibility.
What provides additional cushion: Americans' expectations for future inflation remain stable. That anchor, Powell said, reduces the urgency for the central bank to act preemptively.
Powell also used the classroom moment to deflect suggestions that he offer guidance to Kevin Warsh, his successor awaiting Senate confirmation. He stressed the importance of the Fed staying true to its mandate and resisting pressure from administrations to repurpose its tools for other policy goals.
"There's always a time when an administration looks and says, 'It would be good to use [the Fed's tools] for something else,'" Powell said. "It happens all the time, but we have to be careful to stick to what we're doing."
In lighter moments, Powell acknowledged the irony of lecturing economics students on Fed decision-making. He joked that perhaps the class should tell him what to do, given they had just worked through textbook supply shock scenarios.
On the broader topic of leadership within the Fed itself, Powell reflected on consensus-building around the policy table. He cited listening as an underrated skill, particularly the difference between actually hearing colleagues and merely broadcasting to them.
"If you listen to people, and you hear them ... and they understand that you're actually listening to them, and not just communicating at them, for most of the people, most of the time, that's going to be enough," he said, noting the principle applied equally to relations with Congress.
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