Powell says Fed is monitoring energy price spikes, but that it’s limited in what it can do

CAMBRIDGE, Mass. (AP) — Federal Reserve Chair Jerome Powell said Monday that it is important to closely monitor inflation amid a spike in energy prices from the Iran war.

Powell, who spoke before nearly 400 students at Harvard University as gas prices inched toward an average of $4 per gallon in the U.S., said there wasn’t a lot Fed policymakers could do since energy shocks “tend to come and go pretty quickly” and monetary maneuvers work over the longer-term. But a series of energy shocks, nevertheless, could be concerning.

“You have to carefully monitor inflation expectations because you could have a series of big supply shocks and that can lead, you know, the public generally, businesses, price setters, households … to start expecting higher inflation over time. Why wouldn’t it?” Powell said.

In his wide-ranging remarks, Powell also acknowledged young graduates were entering a challenging job market. He noted that some of the headwinds facing graduates are the role of artificial intelligence, low unemployment rate and very low job creation.

The U.S. job market has been lackluster for the past year. Employers added fewer than 10,000 jobs a month in 2025 – weakest hiring outside a recession since 2002. This year started out with a decent 126,000 new jobs in January. But in February, the United States lost 92,000 jobs.

Still, despite sluggish hiring, the unemployment rate has stayed low – at 4.4%. Economists refer to a low-hire, low-fire job market in which companies are hesitant to add staff but don’t want to let go of the workers that they have. That’s made it especially hard for young people to find employment. There’s some concern that artificial intelligence is taking over entry-level work that previously would have gone to young jobseekers, or that companies are reluctant to make hiring decisions until they better understand how they are going to use AI.

Powell said he was optimistic over the medium- to long-term, noting that history has shown that technology innovations have repeatedly raised living standards and increased production. Large-language models, he said, make people, including himself, more productive.

“You’re in a situation where you need to really invest the time to master the use of these new technologies,” Powell said. “There’s no denying it’s a challenging time to enter the labor market, It may take some patience and all that, but in the longer term, this economy is going to give you great opportunities. Just be a little optimistic.”

Neither Powell nor the students who asked questions mentioned President Donald Trump, who has repeatedly criticized him. But Powell did stress the importance of the Fed’s independence.

“It’s very hard to build great democratic institutions and much easier to bring them down,” Powell said.

President Donald Trump has repeatedly urged Powell and the Fed to cut interest rates, which would lower the costs to borrow for households, businesses and the U.S. government. Powell’s caution has infuriated Trump, who has demanded the Fed cut borrowing costs to energize the economy.

Some of the economic policies under the Trump administration, however, have complicated the dual mandate of the Federal Reserve, which is to keep prices stable and seek maximum employment.

The U.S. has hit all of its trading partners with new tariffs which can boost retail prices, and the war in Iran has sent energy prices soaring.

The average gallon of gas in the U.S. rose to $3.99 overnight, according to motor club AAA.

Trump escalated his attacks on the Fed in January, when the Department of Justice served the central bank with subpoenas and threatened it with a criminal indictment over his testimony this summer about the Fed’s building renovations.

The Fed has been renovating its Washington, D.C. headquarters and a neighboring building. With some of the construction occurring underground and as building materials have soared in price after inflation spiked in 2021 and 2022. Recent estimates from the Fed suggest the current estimated cost of $2.5 billion is about $600 million higher than a 2022 estimate of $1.9 billion.

Trump says the alleged mismanagement of a building renovation project could be grounds for firing Powell. But firing the Fed chair would threaten the Fed’s venerated independence, which has long been supported by most economists and Wall Street investors.