STORY: :: Harvard University
:: Cambridge, Massachusetts / March 30, 2026
:: Powell says the Fed can 'wait and see' how the Iran war hits U.S. inflation
:: Jerome Powell, Federal Reserve Chair
"The tariff inflation is visible and we think it's really just a one-time price increase. That's been our thinking since the beginning. Right now we think it's adding somewhere between a half and a full percentage point to inflation. But that's a much smaller thing than we saw during the pandemic inflation. And, you know, and of course, now we're facing events in the Middle East, which will certainly affect gas prices. And we feel like our policy is in a good place for us to wait and see how that turns out."
"Inflation expectations do appear to be well anchored beyond the short term. But nonetheless, it's something as we will eventually maybe face the question of what to do here. We're not really facing it yet because we don't know what the economic effects will be, but we'll certainly be mindful of that broader context when we make that decision."
As the Iran war enters its fifth week and U.S. gasoline prices rise to around an average of $4 a gallon, the Fed faces a potential squeeze between its two mandates of full employment and price stability.
The Fed left its overnight benchmark interest rate steady in the 3.50%-3.75% range earlier this month after the end of a two-day policy meeting.
In a press conference after the meeting, Powell said he would want to see tariff-driven inflation in goods prices subside before even getting to the question of whether the central bank ought to ignore any rise in inflation stemming from the Iran war, or to respond to it with tighter monetary policy to keep inflation from accelerating.
Investors' inflation concerns since then have contributed to a rise in Treasury yields, and a University of Michigan survey showed a jump in household price expectations in the coming year. Other measures, including a widely watched market-based gauge, have been more sanguine.
