At a forum discussing central bank independence, Federal Reserve Chairman Jerome Powell emphasized the necessity for the central bank to operate independently from political influence as it addresses persistent inflation.
In his speech delivered to Sweden’s Riksbank, Chairman Powell stated, “Price stability serves as the foundation for a robust economy and offers immeasurable benefits to the public in the long-term. However, restoring price stability when inflation is high may necessitate measures that are not politically popular in the short-term, such as increasing interest rates to moderate economic growth.”
He went on to elaborate, “The absence of direct political control over our decisions allows us to implement these necessary measures without considering short-term political factors.”
It should be noted that the speech did not provide any insights into the Federal Reserve’s future policy decisions. Chairman Powell has previously stated that political considerations do not factor into his actions.
Additionally, the Chairman addressed calls from legislators for the Fed to use its regulatory powers to address climate change. He stated that it is not appropriate for the Fed to pursue such goals without explicit legislative direction, and that decisions related to climate change policies should be made by the elected branches of government, reflecting the will of the public as expressed through elections.
The Fed will, however, initiate a pilot program this year, inviting the nation’s six largest banks to participate in a “scenario analysis” designed to evaluate the stability of these institutions in the event of major climate events. This exercise will be separate from the stress tests routinely conducted by the Fed to assess the resilience of banks in hypothetical economic downturns. Participating institutions include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.