Washington\u00a0\u2014\u00a0\n <\/p>\n
\n The Federal Reserve\u2019s response to the US-Israeli war on Iran largely hinges on how the conflict affects Americans\u2019 expectations about inflation, Chair Jerome Powell said Monday.\n <\/p>\n
\n \u201cThe tendency is to look through any kind of a supply shock,\u201d he said during a moderated conversation hosted by Harvard University. \u201cBut a critical, essential aspect of that is you have to carefully monitor inflation expectations.\u201d\n <\/p>\n
\n The Fed chief also hinted at keeping interest rates unchanged in the short term, looking through the ongoing global energy price shock: \u201cMonetary policy works with long and variable lags, famously, and so, by the time the effects of a tightening in monetary policy takes effect, the oil price shock is probably long gone,\u201d he said.\n <\/p>\n
\n Powell\u2019s latest remarks come as the Iran war stretches into its fifth week<\/a>, with President Donald Trump threatening to destroy the country\u2019s energy infrastructure if a deal isn\u2019t reached to end the conflict and reopen the Strait of Hormuz<\/a>, a major global chokepoint that handles one-fifth of the world\u2019s oil supply, along with many other commodities.\n <\/p>\n \n Oil prices rose<\/a> Monday after Trump\u2019s comments: Brent crude, the global benchmark, climbed past $116 a barrel earlier in the day, before paring back those gains. Gas prices across America have already surged over the past month. The blockade has also jacked up plastic<\/a> and fertilizer<\/a> prices.\n <\/p>\n \n Americans have taken note, with consumer sentiment declining 6% this month<\/a> to its lowest point since December, according to the University of Michigan\u2019s latest consumer survey. People\u2019s inflation expectations in the year ahead have shot higher, the survey indicated, however, longer-run expectations have remained in check.\n <\/p>\n \n Fed officials focus more on long-run expectations, in the next five to 10 years, which serve as a proxy for Americans\u2019 confidence in the Fed\u2019s ability to rein in price increases. However, that could take a turn for the worse if the Iran war drags on for months.\n <\/p>\n