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

STOCKHOLM, Jan 10 (Reuters) – The Federal Reserve’s independence from political influence is key to its ability to fight inflation, but requires it to stay clear of issues like that climate change that go beyond its mandate established by Congress, Fed Chairman Jerome Powell said on Tuesday.

“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 lack of direct political control over our decisions allows us to take these necessary actions without considering short-term political factors,” Powell said in remarks at a forum on central bank independence sponsored by the Swedish central bank.

But “we should ‘stick to our knitting’ and not stray to seek perceived social benefits that are not closely tied to our statutory goals and authorities,” Powell said. “To consider new goals, however valid, without a clear statutory mandate would undermine the case for our independence.”

Although Powell said the Fed’s regulatory powers give it a “narrow” role in ensuring that financial institutions “appropriately manage” the risks they face from climate change, “we are not and will not be a “climate decision maker”.

“Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or our surveillance tools to promote a greener economy or to achieve other climate-related goals,” he said. “Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the will of the public as expressed through elections,” he told the Stockholm forum.

Powell’s comments, particularly on climate change, are not new.

But the rephrasing came in sharp terms as his first public remarks since the U.S. Republican Party nominated one of its members for Speaker of the House of Representatives and began picking new chairs for committees that oversee governments. federal government operations, including the Fed.

Powell, now in his fifth year as Fed chair, has placed a high priority on building strong relationships with elected officials from both major U.S. parties, but has come under fire from some Republicans for having view, allowed the Fed to stray from its core responsibilities. in areas like climate change and the economics of race.

STAY ON MISSION

Climate change has been a particular flashpoint.

While Powell’s view of the Fed’s role contrasts with Europe’s major central banks that have integrated green economy efforts into their policymaking, she acknowledges the more divided politics in the United States.

Powell appeared to nod in his comments in Stockholm.

To maintain authority over its primary mission of inflation and demand management, “we have to earn it, and that means sticking to this job and not looking for broader things,” Powell said. “We shouldn’t get ahead of the public if there’s no specific mandate. In the case of the United States, that’s a particularly salient point.”

There are even disagreements within the Fed over 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 was not in favor of issuing guidance on the matter because while “climate change is real…I disagree with the premise that it poses a serious risk” to financial stability.

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

Powell said he believes this principle is “well understood and widely accepted” in the United States, embodied in a federal law that tasks the Fed with maintaining maximum employment and stable prices.

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

Our standards: The Thomson Reuters Trust Principles.

howard schneider

Thomson Reuters

Covers the US Federal Reserve, monetary policy and economics, graduated from the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, business reporter and local Washington Post staffer.

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