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Independence is critical to central banks achieving their mandates in that it insulates monetary policy decisions from short-term political considerations, Federal Reserve Chair Jerome Powell said Tuesday at the International Symposium on Central Bank Independence.
He specifically addressed the importance of central bank independence when dealing with the price stability part of the Fed’s dual mandate (the other being full employment). “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,” Powell said, according to his prepared remarks. “The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”
Important public policy decisions should be made “in almost all cases” by elected officials, he noted.
Powell also discussed the Fed’s role in incorporating perceived risks associated with climate change in its bank supervision function. While he said policies directly addressing climate change should be made by elected branches of government, “the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. Those are “tightly linked” to its responsibilities for bank supervision.
“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,” Powell said. “We are not, and will not be, a ‘climate policymaker.'”
10:01 AM ET: Event concludes.
9:49 AM ET: The pandemic exposed weaknesses in the non-bank financial sector, Powell said. As for the financial system, he would rather focus on structural reform than expanding liquidity.
Update at 9:37 AM ET: Dodd-Frank bank regulation worked well during the pandemic crisis, Powell said. The Fed, using its tools innovatively, could provide emergency lending programs. And the financial system is now more resilient, he added.
Developing… check back for updates.
Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) are among that big banks that will participate in the Fed’s pilot program on climate change starting in early 2023, the central bank said in September.
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