Powell says the Fed should stay away from social issues like climate change

The Federal Reserve’s independence from political influence is critical to its ability to fight against inflationbut requires him to stay away from issues like changing of the climate that go beyond the mandate set by Congress, Fed Chairman Jerome Powell said on Tuesday.

“Restoring price stability in the face of high inflation may require measures that are unpopular 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 measures without regard to short-term political factors,” Powell said in a speech at a forum on central bank independence sponsored by the Swedish central bank.

But “we must ‘stick to our knitting’ and not be distracted by the pursuit of supposed social benefits that are not closely tied to our statutory purposes and mandates,” Powell said. “The pursuit of new goals, no matter how worthy they may be, without a clear legislative mandate would undermine our independence.”

While Powell said the Fed’s regulatory mandate gives it a “narrow” role in ensuring that financial institutions “properly manage” the risks they face from climate change, “we are not and will not be ‘climate policymakers’.” .

“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 to achieve other climate-related goals,” he said. “Decisions on policies directly addressing climate change must be made by elected branches of government and thus reflect the will of society as expressed through elections,” he said at a forum in Stockholm.

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

But this re-statement was made in harsh terms as his first public appearance since the Republican Party appointed one of its members as Speaker of the House of Representatives and began choosing new chairs for committees that control the activities of the federal government, including the Fed.

Powell, now in his fifth year as Fed chairman, has prioritized building strong relationships with elected officials of both major parties, but has faced criticism from some Republicans for what they say has allowed the Fed to divert from its core responsibilities in such areas like climate change and the economy of race.

Stay on a mission

Climate change has been a particular hotspot.

While Powell’s view of the Fed’s role differs from Europe’s major central banks, which have integrated green economy efforts into their policies, she acknowledges a more divided policy in the US.

Powell seemed to nod to this in his comments in Stockholm.

To maintain power over our core mission of managing inflation and demand, “we have to earn it, which means we have to keep doing this and not look for bigger things,” Powell said. “We should not be ahead of the public if there is no specific mandate. In the case of the United States, this is a particularly important point.”

Even within the Fed, there is disagreement about the appropriate stance on climate risks.

When the Fed recently asked the public to comment on “a high-level framework for safely and securely managing climate-related financial risk exposure,” Fed chief Christopher Waller said he did not support issuing guidance on the matter because, while real…I disagree that this poses a serious risk” to financial stability.

However, when it comes to inflation, Powell said it’s critical that the Fed retains the ability to manage it at will. higher interest rates control inflation, even if that means slowing growth and rising unemployment.

Powell said he believes the principle is “well understood and widely accepted” in the US, embodied in federal law that obliges the Fed to maintain maximum employment and stable prices.