The Federal Reserve’s independence from political influence is critical to its ability to fight inflation in the United States, but requires it to steer clear of issues like climate change that are beyond its mandate set by Congress, he said. this Tuesday its president, Jerome Powell.
“Restoring price stability when inflation is high may require measures that are not popular in the short term, as we raise interest rates to slow the economy,” Powell said in prepared remarks at a forum in Stockholm on the independence of the central banks.
“The absence of direct political control over our decisions allows us to take these necessary steps without considering short-term political factors,” he added.
However, he said that “we should ‘stick to our business’ and not wander in search of perceived social benefits that are not closely tied to our goals and legal authorities.”
“Taking on new targets, however valuable, without a clear legal mandate would undermine the argument for our independence,” he said.
According to Powell, the need for the US central bank to manage inflation through interest rates and other monetary policies is “well understood and widely accepted,” and is embodied in a federal law that mandates the Fed to maintain the maximum employment and stable prices.
I note that the Fed’s banking regulatory powers give it a role in ensuring that financial institutions understand the potential risks they face from climate change, but “without explicit legislation from Congress, it would be inappropriate for us to use our monetary policy or supervision to promote a greener economy or to achieve other climate-based objectives.
“We are not, and will not be, a ‘climate policy maker.'”
Powell’s position on the issue contrasts with Europe’s major central banks, which have integrated green economy efforts into their monetary policymaking.
However, he also acknowledges the political realities in the US, where opinion among elected officials is more divided.
Powell and the Fed have generally faced strong criticism from Republicans, who now control the House of Representatives, including for efforts to include climate-related considerations in their oversight of the financial system.
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