Powell Says Fed Requires Independence For Fighting Inflation

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On Tuesday, the chairman of the Federal Reserve, Jerome Powell, said that the independence of the Federal Reserve from political influence is critical to its ability to fight inflation.

He added that this means that the US central bank has to stay out of issues like climate change, which are not part of its mandate that was established by Congress.

Political factors

The comments from the Fed chair were made at a forum that the Swedish central bank had sponsored and was on the topic of central bank independence.

Powell said that they have to take measures for restoring price stability in times of high inflation and they may be unpopular in the short term because they have to boost interest rates for slowing down the economy.

He added that they were only able to take these necessary measures because their decisions are not under direct political control, which means they do not need to consider political factors in the short term.

He said that they need to remain focused and not think about the social benefits that are not connected to their statutory authorities and goals.

The chairman said that their independence would be undermined if they were to take on new goals that do not have a statutory mandate.

Climate policymaker

Powell admitted that the regulatory powers of the Fed did give it a ‘narrow’ role in ensuring that the risks associated with climate change are appropriately managed by financial institutions.

But, he added that they were not and could not become ‘climate policymakers’. He said that they could not use their supervisory tools or monetary policy for achieving climate-based goals without clear congressional legislation.

He stated that the elected branches of the government should make decisions about policies that can address the issue of climate change directly.

This is not the first time that Powell has expressed his opinion when it comes to climate change.

The restatement

However, his restatement comes when one of the members of the US Republican Party has been chosen as Speaker of the House.

Plus, it has also begun to select new committee chairs for overseeing the operations of the federal government, including the Federal Reserve.

In his fifth year as chairman, Powell has maintained a strong relationship with officials of both parties, but Republicans have criticized him for allowing the US central bank from moving away from its core.

A specific flashpoint is climate change. Central banks in Europe have changed their policymaking for boosting efforts for a green economy.

But, the politics in the United States is a tad more divided and Powell seemed to be hinting towards it in his comments.

He said that the core mission of the Fed is to manage demand and inflation, which means that they cannot focus on broader things.

Powell believes that where inflation is concerned, the Fed should be able to act the way they see fit, which means increasing interest rates, even if it results in higher unemployment and slower growth.

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