Paul Volcker Harvard Forum: The Federal Reserve has the confidence to "ignore the impact of oil prices," rebutting the replay of 1970s stagflation

The Chair of the U.S. Federal Reserve (Fed), Jerome Powell, participated in a panel discussion in his “Principles of Economics” class session at Harvard University on March 30. In response to recent oil-price volatility triggered by developments in the Middle East, Powell clearly said the Fed can “look through” short-term supply-side shocks; the policy is currently in a “good place,” and it is not in a hurry to adjust its benchmark interest rate of 3.5%~3.75%. He also pushed back against market worries about “1970s-style stagflation,” while acknowledging that the Fed’s current dual economic mandate is full of challenges.
(Background: Powell is delivering a Harvard talk tonight with careful little jabs—markets stay calm and wait for rate hikes: the Middle East war makes rate cuts seem distant.)
(Additional context: The Fed’s megaphone warns—when will things turn critical after “Vosh” takes over the Fed? Powell stays put, and Iran’s war situation makes the FOMC refuse to cut rates.)

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• With global markets watching closely: Fed has the confidence to “wait and see” on oil prices rising
• Pushing back on stagflation—dual mandate falls into a “classic dilemma”
• Keeping a close eye on private credit risk—rate-cut expectations narrow significantly

As global markets closely watch whether the war in the Middle East will force a shift in U.S. monetary policy, Fed Chair Jerome Powell has delivered the latest official stance. On March 30 local time, Powell was invited to take part in a guided discussion during Harvard University’s “Principles of Economics” class session. In a tone that was relatively relaxed but firm, he dissected today’s macroeconomic challenges and the Fed’s response strategy.

With oil prices surging: Fed has the confidence to “wait and see”

Regarding the recent spike in crude oil prices caused by the conflict between the U.S. and Iran, Powell pointed out that monetary policy has “long and variable lags.” This means that by the time the effects of a rate hike or rate cut filter through to the real economy, the supply-side shock to oil prices may already have faded. For that reason, the Fed tends to “look through” such short-term fluctuations.

Powell emphasized that the current rise in oil prices has not put the Fed in front of a “hard choice.” He believes the Fed’s current policy stance is in a “good place,” with ample room to remain patient and wait and see. However, he added that policymakers are closely monitoring inflation expectations; even if short-term expectations may be disrupted by oil prices, long-term inflation expectations remain “solidly anchored.”

Rejecting stagflation, with the dual mandate caught in a “classic dilemma”

When discussing the dual mandate of inflation and employment, Powell admitted that the Fed is facing a textbook “classic dilemma”:

• Downside risk to the labor market: Employment growth is slowing, supporting keeping interest rates low to sustain employment.
• Upside risk to inflation: Inflation remains above the 2% target, and factors such as tariffs bring about a one-time increase in prices—meaning rates cannot be cut too low.

At present, the target range for the federal funds rate remains 3.5%~3.75%. Powell revealed that although the Federal Open Market Committee (FOMC) is not “fully unanimous” on the next step, there is broad support for maintaining the status quo. Notably, he explicitly rejected the claim that the economy has fallen into “1970s-style stagflation,” stressing that U.S. economic growth is still solid and that the unemployment rate remains relatively stable.

Focusing on private credit risk as rate-cut expectations sharply narrow

In addition to inflation and interest rates, Powell also mentioned the private credit market, which has recently been drawing significant attention on Wall Street. He said the Fed is “watching super carefully” that area. While he noted that some investors may face losses, there are currently no signs that would trigger a systemic financial crisis. As for the balance sheet, he reiterated that large-scale asset purchases can indeed lower interest rates and support the economy, and that so far there has been no observable evidence of the expansion bringing the expected negative risks.