Federal Reserve Chair Jerome Powell said Wednesday that rising oil prices from Middle East tensions lifted inflation to 3.5% and added to the uncertainty around the US outlook.
"Inflation has moved up and is elevated, in part reflecting the recent increase in global energy prices," Powell said at a press conference.
Powell said geopolitical tensions, including risks involving Iran and key oil transit routes, have tightened global energy markets and fueled broader price increases.
"Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook," Powell said, adding the Fed will remain attentive to risks on both inflation and growth.
The Federal Open Market Committee kept its benchmark rate unchanged at 3.5% to 3.75% as policymakers assess the impact of rising energy costs on inflation and demand, Powell said.
"In the near term, higher energy prices will push up overall inflation," Powell said, adding that the scope and duration of the economic effects remain unclear as the conflict evolves.
Powell said oil market volatility tied to geopolitical risks could disrupt supply flows, including through key chokepoints such as the Strait of Hormuz, increasing pressure on global prices.
"We will continue to monitor the risks to both sides of our dual mandate," Powell said, noting the Fed will respond as energy-driven inflation and uncertainty shift the outlook.
Data showed total personal consumption expenditures inflation rose 3.5% over the year, while core inflation, excluding food and energy, increased 3.2%, reflecting persistent price pressures, Powell said.
"Monetary policy is not on a preset course," Powell said, adding the Fed will adjust rates based on incoming data and evolving risks tied to energy markets and geopolitical tensions.