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Powell: Federal Reserve Should Maintain Independence, Mostly Avoid Climate Issues

By:
S.J. Steinhardt
Published Date:
Jan 10, 2023

The Federal Reserve Board should maintain its independence and avoid other issues that are not within its mandate, Chair Jerome Powell said in a speech at a symposium on central bank independence in Stockholm.

“The case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations,” he said. “But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy.”

“With independence comes the responsibility to provide the transparency that enables effective oversight by Congress, which, in turn, supports the Fed's democratic legitimacy,” he added. “We are tightly focused on achieving our statutory mandate and on providing useful and appropriate transparency.”

Stressing that the Fed should “stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day,” he referenced climate change in stating that “[t]aking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”

“Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations. Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections,” he said. “At the same time, in my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”

“But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” he said. “We are not, and will not be, a "climate policymaker."”

Last year, the Securities and Exchange Commission (SEC) issued proposed rules to enhance and standardize climate-related disclosures for investors.

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