"It's too soon to know the scope and duration of potential effects on the economy" from the Middle East conflict, Federal Reserve Chair Jerome Powell said on Wednesday at his post-rate decision press conference.
With the Federal Open Market Committee keeping its key rate unchanged at 3.50%-3.75%, Powell called the level "within plausible estimates of neutral" — the point at which interest rates neither stimulate nor depress the economy.
There will be some effects on inflation coming forward, he said. But he expects to see more progress on inflation at about mid-year as tariffs lap from a year ago. "If we don't see inflation progress, you won't see a rate cut," Powell noted.
The current inflation overshoot is mainly from tariffs on goods, he added.
The major averages slid to their lows of the day as Fed Chair Powell said that the central bank wasn’t making as much progress on bringing down inflation as it had hoped.
“The forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation,” Powell said at his press conference.
At their session lows, the Dow Industrials slid more than 600 points on the day, or 1.3%, while the S&P 500 and the Nasdaq Composite fell more than 1%.
3:17 PM ET: Economists won't know for years why productivity started rising so much about four years ago. So far, generative AI hasn't had a big impact on productivity, Powell said. With that answer, the press conference concluded.
3:07 PM ET: The U.S. economy has remained strong through many challenges, including high interest rates in 2023, he noted. However, he's not willing to say that resilience will continue. "I don't know what's going to happen in the next inter-meeting cycle or in the Middle East," Powell said.
3:04 PM ET: Powell said long-term inflation expectations remain anchored.
2:59 PM ET: The possibility of the Fed's next rate move being an increase was discussed at the meeting, he said. However, that's not the base case for most of the FOMC participants, Powell added.
2:51 PM ET: "I have no intention of leaving the board until the Department of Justice investigation on him is "well and truly over." He has not yet made a decision on whether he will stay on the board after the investigation has concluded.
2:50 PM ET: Policy is now at the "right place," he said. Powell characterized policy as "on the higher borderline of restrictive vs. not restrictive." The tightness of policy is either at the "high end of neutral or mildly, maybe even moderately neutral."
Updated at 2:45 PM ET: "The net of the oil shock" will be downward pressure on spending and upward pressure on inflation, Powell said.
Consumer and business spending has remained resilient, while the housing market remains weak, he said. The Federal Open Market Committee members' median projection for GDP growth in 2026 increased to 2.4%
Job openings, the unemployment rate, and wage growth have shown little change, he observed.
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