Fed chair warns energy price surge has yet to peak as bank’s outlook turns more divided

Federal Reserve Chair Jerome Powell said Wednesday that the energy price surge has not yet peaked, warning that a prolonged oil shock could intensify its effect on the global economy and monetary policy outlook.

Speaking after the Fed held its benchmark interest rate steady, Powell said the oil shock was affecting Europe and Asia more sharply than the US, but added that its effects would become much more visible if it continues for "much longer."

Powell said the number of Fed officials who see a rate hike as likely as a rate cut has increased, underlining a more divided policy outlook as policymakers assess inflation risks from higher energy prices.

The remarks came after an unusually split Federal Open Market Committee decision, with officials leaving the federal funds rate unchanged between the 3.5% - 3.75% range. The decision came with an unusual level of disagreement among policymakers, as the Federal Open Market Committee was split 8-4.

Powell said the central bank remains focused on preserving its independence and conducting monetary policy without political considerations, as he criticized recent legal actions against the Fed as “unprecedented.”

He said he has “no choice” but to stay on the Fed board after his chair term ends in May, citing legal actions taken by the Trump administration.

“I had long planned to be retiring,” he said. “The things that have happened really in the last three months have, I think, left me no choice but to stay until I see them through at least that long.”

“I’ve said that I will not leave the board until this investigation is well and truly over with transparency and finality, and I stand by that,” he said. “I’m encouraged by recent developments, and I’m watching the remaining steps in this process carefully.”

After his term ends, Powell said he would “continue to serve as a governor for a period of time to be determined.”

Powell rejected suggestions that he would act as a “shadow” chair after the leadership transition, saying he expects a “normal, standard” handover with Kevin Warsh, President Donald Trump’s nominee for the chair.