The Federal Reserve's "Number Three" Offers Reassurance: Interest Rates Will Remain Unchanged for Now, and Powell Will Continue to "Hold the Center Stage"!

Ask AI · Why Soaring Energy Prices Haven’t Shaken the Fed’s Rate Decision

Regarding the energy price surge triggered by Middle East conflict, the Fed’s “number three” gave a clear response: No need to panic, current monetary policy is enough to “sit tight”!

New York Fed President Williams stated that although he expects the high energy costs caused by the Iran war to push up overall inflation, his overall outlook for potential U.S. price pressures remains unchanged.

“There’s not much change in the overall outlook for potential inflation,” Williams said plainly in an interview on Tuesday. He added that he expects core inflation, excluding food and energy, to rise only by 0.1 to 0.2 percentage points.

Williams revealed that he has slightly lowered his 2026 U.S. economic growth forecast to a range of 2% to 2.5%. Before the outbreak of war, his forecast was between 2.5% and 2.75%. At the same time, he also foresees overall inflation rising.

Williams emphasized that there is currently no need to consider any adjustments to the Fed’s benchmark interest rate.

He said, “The current monetary policy is already in an excellent position,” fully capable of observing how the Middle East conflict impacts the economy afterward. “Monetary policy is where it should be, and if the situation changes, we can respond at any time.”

The Iran war is testing the Fed’s dual mandate to the limit, with soaring energy prices posing both a risk to slow economic growth and fueling inflation. As the Trump administration threatens to target Iran’s civilian infrastructure starting Tuesday, there is no sign of cooling down in this conflict and its blockade of global oil supplies.

Several Fed officials, including Chair Powell, have stated that the current interest rate level is appropriate to balance the rising risks at present.

After the unexpectedly strong jobs report in March lowered the unemployment rate to 4.3%, Williams has shown greater confidence in the U.S. labor market.

“We see that the current labor market is much more solid; this is definitely not a market heading toward weakness,” Williams said.

FOMC Leadership Contest

When asked who will lead the Fed’s rate-setting body — the Federal Open Market Committee (FOMC) — in the coming months, Williams clearly stated that Fed Chair Powell will continue to serve as the head of the committee until the Senate officially confirms a new Fed Chair. This means Powell may continue to hold significant influence over monetary policy in the coming months.

Trump has nominated former Fed Governor Waller to succeed Powell (whose term as Chair ends on May 15). However, a key Republican senator has vowed that unless the Department of Justice drops its investigation into the Fed, he will block Waller’s confirmation. And the DOJ prosecutors show no sign of backing down.

Powell’s potential term as a Fed governor extends until 2028, and he has vowed to remain at the Fed until the investigation “resolves transparently and definitively.” He also said that if Waller’s nomination is not approved before May 15, he expects to serve as interim Chair during the transition.