Warsaw: US Federal Reserve Chair Jerome Powell said Monday the US central bank sees no immediate need to raise interest rates in response to the recent oil price shock, arguing that inflation expectations remain under control and that tightening policy now could unnecessarily weigh on the economy later.

According to Anadolu Agency, Powell, speaking at Harvard University, noted that the Fed is not yet at a point where it needs to respond to higher energy prices with a rate increase as policymakers still do not know the full economic effects of the Iran war and tariff-related price pressures. He emphasized that inflation expectations appear to be well-anchored beyond the short term, while highlighting that the central bank would remain mindful of the broader backdrop when making future decisions.

Oil prices have surged over 45% in a month following attacks on Iranian and Gulf oil infrastructure and the closing of the Strait of Hormuz. Powell stated that the current policy rate, held in a range of 3.5% to 3.75%, remains 'a good place' for the Fed as it monitors developments in the economy, including geopolitical tensions and their impact on inflation.

He warned that raising rates in response to a supply-driven oil shock could prove counterproductive, since monetary policy works with a lag and may start to restrain growth only after the impact of higher oil prices has already faded. Powell explained that by the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone, and it could weigh on the economy at an inappropriate time. He added that the Fed tends to 'look through' supply shocks.

Powell's remarks seemed to ease market expectations for further tightening this year. Traders significantly reduced bets on a quarter-point rate increase after his appearance, compared with expectations seen late last week.

Additionally, Powell mentioned that the Fed is closely monitoring risks in the $3 trillion private credit sector, where defaults have risen and some investors have withdrawn funds. However, he noted that officials do not currently see signs of contagion to the banking system, describing the situation as a correction rather than a broader systemic event.

Powell, whose term as Fed chair is due to end in mid-May, declined to comment on the policy preferences of his designated successor, former Fed Governor Kevin Warsh.