Federal Reserve's Goolsbee: Inflation Becomes Top Risk, Does Not Rule Out Rate Hikes, Still Retains Room for Rate Cuts This Year

On Monday, March 23, local time, Chicago Federal Reserve Chair Jerome Powell stated that, given the relatively stable unemployment rate, inflation is currently the main risk facing the U.S. economy. He also said that in certain situations, the Federal Reserve might need to raise interest rates, but if the Iran conflict is quickly resolved, the Fed could still cut rates later this year.

During a media interview on Monday, Powell said that with high oil prices potentially affecting consumer expectations, “at this stage, I believe inflation should be slightly prioritized over employment.”

“In a situation where inflation is already at an uncomfortably high level… and now there is a possible ongoing gasoline price shock, this is a tense moment. We must hope it won’t have a lasting impact on the economy,” he said.

Powell does not have voting rights on the Federal Open Market Committee (FOMC) this year.

As the Iran war enters its fourth week, the Strait of Hormuz remains effectively blocked, carrying about one-fifth of global oil shipments.

Following a surge in international oil prices, the average retail gasoline price in the U.S. has approached $4 per gallon. Before the Iran conflict erupted, U.S. gasoline prices were slightly below $3 per gallon.

The sharp rise in gasoline prices will significantly impact inflation, which could lead the Federal Reserve to adjust its interest rate path.

Last week, Fed officials continued to hold steady at the policy meeting, maintaining the federal funds rate target range at 3.5%–3.75%, and amid the uncertainty caused by the Iran war, continued to hint at a rate cut later this year.

However, since last week’s meeting, concerns about inflation in financial markets have intensified, and investors have quickly priced in higher interest rate expectations. Currently, federal funds rate futures indicate a higher likelihood of rate hikes in 2026 than cuts.

Powell pointed out that most economic indicators show the Fed is closer to full employment, but inflation is still below its target.

“If inflation performs well, we might return to a environment of multiple rate cuts this year,” Powell said. “I can also imagine that if things develop in another direction and inflation gets out of control, we may need to raise rates.”

Last week, the U.S. Department of Labor reported that in February, the Consumer Price Index (CPI) increased by 2.4% year-over-year and 0.3% month-over-month; core CPI, which excludes volatile food and energy prices, rose 2.5% year-over-year and 0.2% month-over-month.

It should be noted that since the Iran conflict broke out on February 28, the war’s impact on U.S. inflation will only be reflected in the March report (to be released in April).

U.S. President Trump signaled a de-escalation on Monday, stating that he would temporarily halt strikes on Iran’s energy facilities for five days; negotiations between the U.S. and Iran are going very smoothly, and a framework agreement has been reached.

However, senior Iranian officials denied that negotiations with Iran were taking place.