Powell defends the independence of the Fed

The independence of the Federal Reserve (Fed) from political influence is essential to fight inflation, and requires that it stay out of issues such as climate change, which are beyond its mandate established by Congress, said the president of the Fed, Jerome Powell.

“Restoring price stability when inflation is high requires short-term measures that are not popular, as we raise interest rates to slow the economy. The absence of political control over our decisions allows us to take these necessary steps without considering political factors,” Powell told a forum on central bank independence sponsored by the Swedish central bank, Riksbank.

“But we must stick to our business and not wander in search of perceived social benefits that are not closely tied to our goals and legal authorities,” he said.

Despite Powell’s assertion that the US central bank’s regulatory powers give it a narrow role in ensuring that financial institutions properly manage the risks they face from climate change, he asserted that they are not, and will not be, climate policymakers.

“Without explicit legislation from Congress it is inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or achieve other climate-based goals,” Powell said.