- Jerome Powell reaffirmed Fed's commitment to a 2% inflation target despite current misses
- He warned geopolitical risks like West Asia tensions could impact the US economic outlook
- Powell noted Fed tools have limited effect on supply shocks from conflicts or supply chain issues
US Federal Reserve Chair Jerome Powell said the central bank remains firmly committed to bringing inflation back to its 2% target, while warning that geopolitical risks, including the ongoing tensions in West Asia, could pose challenges to the economic outlook.
Speaking at Harvard University, Powell said inflation expectations in the United States remain well anchored and the Federal Open Market Committee (FOMC) is committed to achieving its 2% inflation goal, even as the central bank has missed the target for some time.
Powell noted that tariffs typically have a one-time impact on inflation and said there is no evidence that the Federal Reserve's past bond-buying programmes significantly contributed to inflation. However, he acknowledged that the Fed's policy tools have limited ability to address supply-side shocks, such as those arising from geopolitical conflicts or disruptions in global supply chains.
He added that risks remain on both sides of the Federal Reserve's dual mandate of maintaining price stability and maximum employment. Powell said current monetary policy is in a “good place”, allowing the central bank to wait and watch how economic conditions evolve before making further policy moves.
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On financial stability, Powell said a correction is underway in private credit markets but does not currently pose a broader systemic risk. He also noted that there are no significant linkages between private credit markets and the banking system that would threaten financial stability.
Powell described the US labour market as “challenging”, citing longer-term structural and secular forces affecting employment dynamics. Despite this, he said the US economy remains dynamic and productive.
He also warned that policymakers and financial institutions should remain vigilant against the risk of a large cyber attack and emphasised that regulators should not try to eliminate all risks from the financial system. Powell added that the Federal Reserve has significantly strengthened the banking system since the Global Financial Crisis.
He also stressed the importance of the Federal Reserve's independence in conducting monetary policy, noting that there is broad consensus that the central bank must remain independent to effectively carry out its mandate.
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