CAMBRIDGE, Mass. — Speaking to nearly 400 Harvard University students on Monday, Federal Reserve Chairman Jerome Powell acknowledged that central bank officials are keeping a close eye on inflation as energy costs surge due to the Iran conflict.
With gasoline prices approaching $4 per gallon nationwide, Powell explained that Fed policymakers have limited tools to address energy market disruptions since these “tend to come and go pretty quickly” while monetary policy operates over longer timeframes. However, he cautioned that multiple energy disruptions could become problematic.
“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 stated.
During his comprehensive remarks, Powell also recognized that recent graduates face a difficult employment landscape. He pointed to several challenges including artificial intelligence’s expanding role, persistently low unemployment rates, and minimal job growth.
The nation’s employment situation has remained sluggish throughout the past year. Companies have added fewer than 10,000 positions monthly in 2025, marking the weakest hiring pace outside of a recession since 2002. While January showed promise with 126,000 new positions, February saw the country lose 92,000 jobs.
Despite weak hiring activity, unemployment has remained at 4.4%. Economic experts describe the current environment as a “low-hire, low-fire” market where businesses avoid adding staff but retain existing employees. This dynamic has particularly impacted young job seekers. Concerns exist that artificial intelligence may be replacing entry-level positions traditionally filled by new graduates, or that employers are delaying hiring decisions while determining how to implement AI technologies.
Looking ahead, Powell expressed confidence about medium and long-term prospects, referencing historical patterns showing technological advances consistently improving living standards and boosting productivity. He noted that large-language models enhance productivity for users, including himself.
“You’re in a situation where you need to really invest the time to master the use of these new technologies,” Powell advised. “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.”
While neither Powell nor student questioners referenced President Donald Trump, who has frequently criticized the Fed chair, Powell emphasized the significance of central bank independence.
“It’s very hard to build great democratic institutions and much easier to bring them down,” Powell remarked.
Trump has consistently pressured Powell and the Fed to reduce interest rates, which would decrease borrowing expenses for consumers, businesses, and government. Powell’s cautious approach has frustrated Trump, who wants lower borrowing costs to stimulate economic growth.
Several Trump administration policies have created complications for the Federal Reserve’s dual objectives of maintaining price stability and maximizing employment.
New tariffs imposed on all trading partners could increase consumer prices, while the Iran conflict has driven energy costs higher.
According to AAA, average gasoline prices reached $3.99 per gallon overnight.
Trump intensified his Fed criticism in January when the Justice Department issued subpoenas to the central bank and threatened criminal charges related to Powell’s summer testimony about headquarters renovation costs.
The Fed has been updating its Washington, D.C. headquarters and an adjacent building. Underground construction work and rising material costs following 2021-2022 inflation have inflated expenses. Current Fed estimates place total costs at $2.5 billion, representing a $600 million increase from the 2022 projection of $1.9 billion.
Trump claims the renovation project’s alleged mismanagement could justify removing Powell from his position. However, dismissing the Fed chair would undermine the central bank’s respected independence, which has traditionally received support from economists and Wall Street professionals.
