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

STOCKHOLM, Jan 10 (Reuters) – The Federal Reserve’s independence from political influence is central to its ability to fight inflation, but requires it to stay out of issues beyond its congressional mandate, such as climate change, Fed Chairman Jerome Powell said on Tuesday.

“Restoring price stability when inflation is high may require unpopular actions in the short term as we raise interest rates to slow the economy. The lack of direct political control over our decisions allows us to take these necessary actions without considering short-term political factors,” said Powell Sweden. He said in his speech at the forum dedicated to the independence of the central bank, sponsored by the Central Bank.

But “we must ‘stick to our weave’ and not pursue perceived social benefits that are not closely related to our statutory goals and mandates,” Powell said. “Taking new targets, no matter how worthy, without a clear legal mandate would undermine our independence.”

While Powell said the Fed’s regulatory powers give it a “narrow” role to ensure financial institutions “appropriately manage” the risks they face from climate change, “we are not and will not be a ‘climate politician’.”

“Without clear legislation from Congress, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or achieve other climate-based goals,” he said. “Policy decisions to deal directly with climate change must be made by elected branches of government and thus reflect the will of the public as expressed through elections,” he said at a forum in Stockholm.

Powell’s comments on climate change in particular are not new.

But the announcement came sharply as his first public appearance after the US Republican Party named one of its own members as speaker of the House of Representatives and began selecting new chairmen for committees that oversee the federal government, including the Fed.

Now in his fifth year as Fed chairman, Powell has made it a high priority to build strong relationships with elected officials from both major US parties, but has faced criticism from some Republicans for what they say is allowing the Fed to shirk its core duties. to areas such as climate change and the economics of race.


Climate change has been a particular flashpoint.

While Powell’s view of the Fed’s role differs from that of Europe’s major central banks, which have integrated green economy efforts into their policies, he recognizes the more divided politics in the United States.

Powell alluded to this in his comments in Stockholm.

To maintain authority over its core mission of managing inflation and demand, “we have to be worthy of that, and that means staying true to that and not looking for broader things,” Powell said. “If there’s no specific mandate, we shouldn’t get ahead of where the public is. In the United States, that’s a particularly salient point.”

There is even disagreement within the Fed about the appropriate stance on climate risks.

When the Fed recently asked for public comment on a “high-level framework for the safe and sound management of climate-related financial risk exposures,” Fed Governor Christopher Waller said he does not support issuing guidance on “climate change because it is real… I do not agree with the idea that it poses a serious risk to financial stability.

When it comes to inflation, Powell said it’s critical that the Fed retains the ability to manage as it sees fit — raising interest rates to control inflation, even if that means slower growth and higher unemployment.

Powell said he felt the principle embodied in the federal law charging the Fed with maintaining maximum employment and stable prices was “well understood and widely accepted” in the United States.

Reporting by Lindsay Dunsmuir in Stockholm and Howard Schneider in Washington; Edited by Paul Simao and Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

Howard Schneider

Thomson Reuters

He covers the US Federal Reserve, monetary policy and economics, and is a graduate of the University of Maryland and Johns Hopkins University, with experience as a foreign correspondent, economics correspondent and on the domestic staff of the Washington Post.

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