Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC on December 14, 2022.
Liu Jie | Xinhua News Agency | Getty Images
Federal Reserve Chairman Jerome Powell stressed on Tuesday that the central bank must be free from political clout while tackling persistently high inflation.
Speaking to Sweden’s Riksbank, Powell noted that stabilizing prices requires tough decisions that can be politically unpopular.
“Price stability is the bedrock of a healthy economy and offers immeasurable benefits to the public over time. But restoring price stability amid high inflation may require measures that are not popular in the short term as we raise interest rates to slow the economy,” the chairman said in prepared remarks.
“The lack of direct political control over our decisions allows us to take these necessary actions without considering short-term political factors,” he added.
Powell’s comments came at a forum to discuss central bank independence and were to be followed by a question-and-answer session.
The speech offered no direct indication of where policy is headed for a Fed that raised interest rates seven times in 2022, by a total of 4.25 percentage points, and has hinted that more hikes are likely this year.
While criticism of Fed actions by elected leaders is often softer-toned, the Powell Fed has met vocal opposition from both sides of the political aisle.
Former President Donald Trump has torn the central bank up for raising interest rates during his tenure, while progressive leaders like Senator Elizabeth Warren (D-Mass.) have criticized the current round of rate hikes. President Joe Biden has largely declined to comment on the Fed’s moves, while noting that the central bank’s primary responsibility is to fight inflation.
Powell has repeatedly emphasized that political factors did not weigh on his actions.
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 noted that the Fed should “stand by our rope and not stray to pursue perceived social benefits that are not closely related to our legislative goals and agencies.”
While the Fed has urged big banks to reassess their financial preparedness in the event of major climate-related events like hurricanes and floods, Powell said that was not the case.
“Decisions on action to combat climate change directly should be taken by elected government agencies and thus reflect the will of the public as expressed through elections,” he said. “But without explicit Congressional legislation, it would be inappropriate for us to use our monetary policy or regulatory tools to promote a greener economy or achieve other climate-related goals. We are not and will not be ‘climate politicians’.”
However, the Fed will launch a pilot program this year that will require the country’s six largest banks to participate in a “scenario analysis” aimed at testing the institutions’ resilience in the event of major climate events.
The exercise is separate from the so-called stress tests, which the Fed uses to test how banks would behave in hypothetical economic downturns. Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.