Jay Powell said the Federal Reserve will not be a “climate politician” as it fully defends the US central bank’s independence from political influence.
In a speech on Tuesday, the Fed chairman said the central bank should stay away from issues outside the purview of Congress and instead maintain a narrow focus on keeping consumer prices stable, promoting a healthy labor market and ensuring the safety of the nation’s banking system. .
“It is important that we stay true to our statutory goals and mandates and resist the temptation to expand our scope to address other important social issues of the day,” he told a conference hosted by Sweden’s central bank.
“Without clear legislation from Congress, it would be inappropriate for us to use our monetary policy or control tools to promote a greener economy or achieve other climate-based goals.”
He added: “We are not and will not be ‘climate politicians’.”
Republican lawmakers have accused the Fed of overstepping its mandate by promising to take climate-related financial risks into account, an area Powell said Tuesday the central bank has “narrow but important responsibilities” related to bank supervision.
“The public reasonably expects supervisors to require banks to understand and appropriately manage their material risks, including the financial risks of climate change,” he said.
Former Bank of England governor Mervyn King told a panel following his remarks that central bank independence “is a great responsibility and cannot be abused by trying to step into areas not expressly mandated by the relevant authority”. political process”.
“I’m concerned that people are actually risking the independence of the central bank in their eagerness to do good,” he said of climate issues.
Last year, Republican senators blocked the appointment of Sarah Bloom Raskin, Joe Biden’s pick to lead banking supervision at the Fed, after she disputed calls from regulators to more proactively address financial risks related to climate change.
A number of other major central banks have advocated expanding their powers to include policing climate risks. Another former BoE governor, Mark Carney, has been a key proponent of such a change.
On Tuesday, Powell said central bank independence was particularly important to the Fed’s success in fighting inflation, which is still at multi-decade highs.
“Restoring price stability when inflation is high may require unpopular measures in the short term as we raise interest rates to slow the economy,” he said. “The lack of direct political control over our decisions allows us to take these necessary actions without considering short-term political factors.”
Since March, the Fed has raised its benchmark rate from near zero to just below 4.5 percent and plans to tighten the economy further this year. Speaking separately on Tuesday, Fed Governor Michelle Bowman said the central bank still had “a lot of work to do” in terms of tightening. He added that the size of the upcoming exchange rate is increasing and the final stop point will depend on the data.
“I’ll be looking for compelling signs that inflation has peaked and more consistent signs that inflation is on the way down,” he said at an event hosted by the Florida Bankers Association.
Democratic lawmakers have already called on the central bank to back off its tightening plans, warning of unnecessary economic pain and excessive job losses.
“Our tools are working, and I think there’s nothing wrong with our mandates,” Powell told the panel.
Speaking at the same event in Stockholm, Isabel Schnabel, a member of the European Central Bank’s executive board, said despite the risk that higher borrowing costs could undermine global environmental efforts, monetary policymakers should push ahead with rising interest rates to fight inflation.
“The green transition will not thrive in a high inflation environment. Price stability is a prerequisite for the sustainable transformation of our economy,” Schnabel said at an event in Stockholm on Tuesday.
Schnabel’s view is in line with the consensus among central bankers that it is up to governments to manage the transition to cleaner energy, while monetary policymakers should focus on their primary task of fighting inflation. He pointed to “underlying price pressures continuing to increase” despite an unexpectedly sharp decline in eurozone inflation as energy prices eased.
But Schnabel said the ECB must move faster to align its investment and lending operations with the goals of the Paris agreement and achieve carbon neutrality by 2050.
The ECB has aimed to make its holdings of corporate bonds more climate-friendly by giving more weight to climate-related criteria when making new purchases. However, that policy has “lost a lot of punch” as it has stopped increasing net bond holdings, Schnabel added.