Fed Chair Jerome Powell told Harvard graduates and students Monday that the Federal Reserve is paying close attention to inflation amid a spike in energy prices tied to the Iran war. Powell spoke in Cambridge, Massachusetts, as gas prices inched toward an average of $4 per gallon in the United States, and he said the central bank’s ability to respond is limited in the short run.
Powell said energy shocks can be brief, adding that “tend to come and go pretty quickly,” and he said monetary maneuvers work over the longer term. He said that even so, a series of energy shocks could become concerning.
In remarks that turned to the longer-term inflation outlook, Powell said policymakers need to watch inflation expectations. He argued that a sequence of large supply shocks could cause the public, businesses, and price setters to start expecting higher inflation over time, asking, “Why wouldn’t it?”
During a wide-ranging discussion of the economy, Powell acknowledged that young graduates were entering a challenging job market. He said unemployment is historically low but that there is very little job creation right now, and he pointed to artificial intelligence as part of the labor-market context.
The broader U.S. job market picture Powell discussed included that employers added fewer than 10,000 jobs a month in 2025, which he described as the weakest hiring outside a recession since 2002. He also cited that the United States began 2026 with 126,000 new jobs in January before moving to 92,000 job losses the following month.
Powell and the audience discussed how this environment affects young people, with economists referring to what he described as a “low-hire, low-fire” labor market. The framing is that companies hesitate to add staff but do not want to lay off workers already on payrolls, which can leave it harder for new jobseekers to find openings.
On artificial intelligence, Powell said he was optimistic over the medium- to long-term, arguing that technological innovations have repeatedly raised living standards and increased production. He said large-language models can make people, including himself, more productive and urged graduates to invest time in learning how to use new technologies, telling them, “Just be a little optimistic.”
In a question-and-answer session, neither Powell nor the students mentioned President Donald Trump, who has repeatedly criticized Powell. Powell instead emphasized the importance of the Fed’s independence, saying, “It’s very hard to build great democratic institutions and much easier to bring them down.”
Powell’s comments also landed amid efforts by the Trump administration to pressure the central bank. The AP report said Trump has urged Powell and the Fed to cut interest rates, and it said the administration’s policies—along with the Iran-war-driven energy increase—have complicated the Fed’s dual mandate to keep prices stable and seek maximum employment. It also noted that the United States has imposed new tariffs on trading partners, which can push up retail prices.
The report said the Iran war has sent energy prices soaring, with AAA reporting the average gallon of gas rose to $3.99 overnight. It also described Trump’s attacks on the Fed that began in January, when the Department of Justice served the central bank with subpoenas and threatened it with a criminal indictment tied to Powell’s testimony last summer about the Fed’s building renovations.
Powell also addressed a potential successor indirectly. The AP report said Trump has nominated former Fed official Kevin Warsh to succeed Powell, but that Warsh’s confirmation has been delayed by a Justice Department investigation, and that Sen. Thom Tillis said he would not vote on any Fed nominee until the investigation is dropped. Powell, without naming Warsh, advised would-be successors to “stick to your knitting and to stick to the things that were actually assigned.”
Powell wrapped up by reiterating what he said the Fed’s tools are for. He said the central bank has “very powerful tools” meant for maximum employment, price stability, and financial stability, adding that policymakers have to be careful not to use those tools for something else at the request of an administration or politician.