Powell Clarifies Fed's Role: Independence in Focus Amid Climate Change
Federal Reserve Chair Jerome Powell recently clarified the central bank's role and independence in addressing climate change. Speaking at a conference in Sweden, Powell emphasized the Fed's focus on maximum employment and price stability, while acknowledging the importance of banks managing climate-related risks.
Powell believes that the Fed's independence should be 'exceedingly rare, explicit, tightly circumscribed' and limited to protecting its mandates from short-term political pressures. He suggested that this independence allows the Fed to raise interest rates to combat high inflation without considering immediate political factors.
Powell argued that the Fed should 'stick to its knitting' and not pursue perceived social benefits like promoting a greener economy, as this would require explicit congressional legislation. He stated that addressing climate change should primarily be the responsibility of elected branches of government.
In 2022, Philip N. Jefferson joined the Federal Reserve Board of Governors, alongside Jerome Powell (Chair), Michelle Bowman (Vice Chair for bank supervision), and Christopher J. Waller. Candidates for these seats were questioned about the Fed's role and limitations concerning climate change and related risks.
Powell's speech underscored the Fed's commitment to its dual mandate of maximum employment and price stability, while acknowledging the importance of banks understanding and managing climate-related financial risks. The Fed's independence, Powell believes, should be preserved to ensure it can make decisions based on long-term economic health, not short-term political considerations.
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