Jerome Powell left no ambiguity on what the Fed sees: the U.S. economy is still “quite resilient,” but the latest energy shock is now a policy problem, not just a headline. He said growth should stay above 2% this year, helped by consumer spending and a wave of data center investment.
What changed is the Fed’s patience. Powell said he wants to see the “backside” of both the energy and tariff shocks before even thinking about rate cuts, and added that the energy surge has not peaked yet. He also said the odds of a hike are now as high as the odds of a cut — a sharper stance than markets had been leaning on.
That matters because Powell is explicitly treating higher oil prices as a hit to both inflation and activity. In Barron’s coverage, he said gas prices drain disposable income and can reduce other spending, which means the energy shock can slow GDP even as it lifts near-term inflation. He also said labor demand has softened and housing remains weak, but the labor market is not driving inflation.
- Powell said the policy rate is already in a “very good place,” near the high end of neutral and slightly restrictive, which gives the Fed room to wait.
- He also said the next 30 to 60 days could change the picture, and that the FOMC was closer today than in March.
- Reuters reported Powell expects tariff-related goods inflation to fade over the course of the year, but only after the one-time shock works through.
The market takeaway is simple: the Fed is no longer acting as if disinflation will arrive on schedule. Oil, tariffs and Middle East risk have pushed the easing timeline farther out, while leaving the door open for a tighter stance if price pressures spread. Powell’s next checkpoint is the next few weeks of energy data — and whether the Strait of Hormuz stays shut long enough to keep gasoline and inflation moving higher.
