chairman of the federal reserve Jerome Powell The central bank on Tuesday stressed the need to break free from political influence while dealing with persistently high inflation.
In a speech to Sweden’s Riksbank, Powell said that stabilizing prices required tough decisions that could be politically unpopular.
“Price stability is the basis of a healthy economy and provides immeasurable benefits to the public over time. But when inflation is high, restoring price stability requires measures that are not popular in the short run because we Raise interest rates to slow the economy.” the chairman said in prepared remarks.
“The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” he added.
Powell’s remarks came on a forum to discuss central bank independence and was to be followed by a question-and-answer session.
There was no direct indication in the speech about which direction policy is headed for the Fed Interest rates increased seven times in 2022, for a total of 4.25 percentage points, and it has indicated likely to grow further this year.
While criticism of the Fed’s actions by elected leaders is often quiet, the Powell Fed has faced vocal opposition from both sides of the political aisle.
Former President Donald Trump criticized the central bank during his administration, while progressive leaders such as Sen. Elizabeth Warren, D-Mass., have criticized the current round of hikes. President Joe Biden has largely refrained from commenting on the Fed’s moves, while maintaining that it is primarily the central bank’s responsibility to tackle inflation.
Powell has repeatedly stated that his actions have not been influenced by political factors.
In another part of Tuesday’s speech, he addressed calls from some lawmakers for the Fed to use its regulatory powers to address climate change. Powell said the Fed “must stick to its weaving and not stray to pursue perceived social benefits that are not tightly tied to our statutory goals and authorities.”
While the Fed has asked big banks to test their financial readiness in case of major climate-related events like hurricanes and floods, Powell said that should go as far as that.
“Decisions regarding policies to directly address climate change should be made by elected branches of government and thus reflect the will of the public as expressed through elections,” he said. “But without clear congressional legislation, it would be unfair for us to use our monetary policy or supervisory tools to promote the green economy or achieve other climate-based goals. We are not ‘climate policymakers’ , and neither will be.’ ,
The Fed will launch a pilot program this year that asks the nation’s six largest banks to participate in a “scenario analysis” aimed at testing the institutions’ stability in the event of major climate events.
The exercise would be in addition to so-called stress tests, which the Fed uses to test how banks would perform under a hypothetical economic downturn. Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.