Powell stresses the need for political independence for the Federal Reserve while addressing inflation

US Federal Reserve Chairman Jerome Powell attends a press conference in Washington, D.C. on December 14, 2022.

Liu Ji | Xinhua News Agency | Getty Images

Chairman of the Federal Reserve Jerome Powell On Tuesday, he stressed the need for the central bank to free itself from political influence while dealing with persistently high inflation.

In a speech to Sweden’s Riksbank, Powell noted that price stability requires making tough decisions that may be politically unpopular.

“Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require uncommon actions in the short term where we raise interest rates to slow the economy,” the chair said in prepared remarks.

“The absence of direct political control over our decisions allows us to take these necessary measures without taking into account short-term political factors,” he added.

Powell’s remarks came at a forum to discuss central bank independence, and were to be followed by a question-and-answer session.

The letter did not include any direct clues about the policy ahead for the Fed raise interest rates seven times In 2022, a total of 4.25 percentage points, and she indicated that More hikes are likely on the way this year.

While criticism of the Fed’s actions by elected leaders is often done in a quieter tone, Powell’s Fed has faced vocal opposition from both sides of the political aisle.

Former President Donald Trump criticized the central bank for raising interest rates during his administration, while progressive leaders such as Sen. Elizabeth Warren (D-Massachusetts) criticized the current round of hikes. President Joe Biden has largely resisted commenting on the Fed’s moves, noting that the central bank’s primary responsibility is to tackle inflation.

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Powell repeatedly stressed that political factors did not influence his actions.

In another part of his speech Tuesday, he addressed calls from some lawmakers for the Federal Reserve to use its regulatory powers to tackle climate change. Powell noted that the Fed should “stick to our knitting needles and not prowl around in pursuit of perceived social benefits that are not closely related to our legal goals and powers.”

While the Fed has asked major banks to examine their financial preparedness in the event of major weather-related events such as hurricanes and floods, Powell said that’s the farthest it should go.

He said that “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 in elections.” “But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not and will not be “climate policy makers.”

However, this year the Fed will launch a pilot program inviting the country’s six largest banks to participate in a “scenario analysis” intended to test the stability of institutions in the event of major weather events.

The exercise will be conducted apart from the so-called stress tests that the Fed uses to test how banks perform under hypothetical economic downturns. Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

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