Powell calls long-term inflation expectations stable, markets pull back on rate hike bets, and three major indices edge up slightly.

On Monday, Federal Reserve Chairman Powell stated that the overall long-term inflation expectations remain stable and they are closely monitoring the potential impact of the war. Powell pointed out at an event at Harvard University that in the long term, inflation expectations are "still relatively stable," but short-term shocks still need to be watched. He emphasized that the Fed is still uncertain about the specific impact a US-Iran war would have on the economy, but policymakers must continue to track changes in inflation expectations. Powell said, "Normally we would choose to ignore the short-term effects of supply shocks, but the precondition is that inflation expectations must be closely monitored." He also noted that since the outbreak of the COVID-19 pandemic, US inflation has not fully returned to the Fed's target of 2%, making current policy decisions more complicated. With the conflict ongoing, international oil prices have significantly risen in the past month. Analysts believe that high oil prices may on one hand push up inflation pressure, and on the other hand suppress consumer demand and drag down economic growth, posing a challenge to monetary policy. Powell said, "We do not know how big the energy shock will be, it is premature to draw conclusions now." He admitted that the Fed is currently facing pressure between policy objectives. On one hand, there are downside risks in the job market, implying that interest rates should remain low to support the economy; on the other hand, there are upside risks in inflation, suggesting that policy should not be overly loose. "There are downside risks in the job market, which means that interest rates should be kept low, but the upside risks in inflation suggest that perhaps low interest rates should not be maintained." During Powell's speech, market pricing showed that bets on Fed rate hikes were withdrawn, and there is now a possibility of rate cuts this year. US stocks saw slight gains, with the S&P 500 up 0.4%, the Nasdaq up 0.14%, and the Dow up 0.86% at the time of writing.