Powell: Fed needs independence to fight inflation, should avoid climate policy

The Federal Reserve’s independence from political influence is critical to its ability to fight inflation, but requires it to steer clear of issues like climate change that are beyond its mandate set by Congress, the Federal Reserve said Tuesday. Fed Chairman Jerome Powell.

“Restoring price stability when inflation is high may require measures that are not popular in the short term, as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary steps without considering short-term political factors.”Powell said in prepared remarks.

But “we should ‘stick to our business’ and not wander in search of perceived social benefits that are not closely tied to our goals and legal authorities”Powell said in remarks at a forum on central bank independence sponsored by the Swedish central bank.

“Taking on new targets, however valuable, without a clear legal mandate would undermine the argument for our independence.”

The need for the US central bank to manage inflation through interest rates and other monetary policies is “well understood and widely accepted”, Powell said, and it is embodied in a federal law that tasks the Fed with keeping employment maximum and prices stable.

Although Powell said the Fed’s banking regulatory powers give it a role in ensuring that financial institutions understand the potential risks they face from climate change, “without explicit legislation from Congress, it would be inappropriate for us to use our monetary policy or tools supervision to promote a greener economy or to achieve other climate-based objectives.

“We are not, and will not be, a ‘climate policy maker’”, he added.

“Policy decisions to directly address climate change must be made by the elected branches of government and therefore reflect the will of the public expressed through elections.he said at the forum in Stockholm, reaffirming the principles he has expounded before when questioned by the public or elected officials about the central bank’s approach to climate change.

Powell’s position on the issue contrasts with Europe’s major central banks that have integrated green economy efforts into their monetary policymaking.

But he also acknowledges the political realities in the United States, where opinion among elected officials is more divided. Powell and the Fed have generally faced strong criticism from Republicans, who now control the House of Representatives, including for efforts to include climate-related considerations in their oversight of the financial system.

Source: Reuters