• Federal Reserve Chair Jerome Powell warns that the energy-driven price spike may have further to run, complicating monetary policy.
  • Global energy markets remain tight, with oil and gas prices near multi-year highs, pressuring central banks worldwide.
  • Powell's remarks come as the Fed balances inflation control against risks of slowing growth.

Federal Reserve Chair Jerome Powell on Thursday delivered a sobering assessment of the ongoing energy surge, stating that price pressures from the sector may not have reached their zenith. Speaking at a monetary policy conference, Powell noted that while some supply chain bottlenecks are easing, energy markets remain strained, with potential for further increases that could delay progress on inflation.

"We haven't seen the peak of energy price impacts yet," Powell said, according to people familiar with his remarks. The comments sent ripples through financial markets, with traders pricing in a higher likelihood of prolonged interest rate hikes. The S&P 500 energy sector gained 1.2% on the day, while broader indices slipped.

The warning comes as the Fed's preferred inflation gauge, the core PCE price index, remains elevated at 4.7% year-over-year, well above the 2% target. Oil prices, meanwhile, have oscillated near $90 a barrel, supported by OPEC+ production cuts and geopolitical tensions. European natural gas prices have surged over 30% this quarter amid reduced Russian flows.

Powell's remarks underscore a delicate balancing act for central bankers: taming inflation without crushing economic growth. "We're prepared to maintain a restrictive stance as long as needed," he added, echoing language from recent Fed minutes. Yet some economists question whether monetary policy can fully address supply-driven energy shocks.

At the same event, European Central Bank President Christine Lagarde highlighted similar challenges, noting that the euro zone faces "persistent energy price pressures." She declined to comment on specific policy moves but reiterated the ECB's data-dependent approach.

The energy surge has also reignited debates about the transition to renewables. "This crisis underscores the urgency of diversifying energy sources," said Fatih Birol, executive director of the International Energy Agency, in a separate interview. But near-term realities mean fossil fuels remain central.

Analysts warn that without a significant demand destruction or supply boost, prices could climb further into winter. Goldman Sachs recently raised its year-end oil price forecast to $100 a barrel, citing dwindling spare capacity.

Correction: An earlier version of this article misstated the date of Powell's speech. It occurred on Thursday, not Wednesday.