Jay Powell said the Federal Reserve will not become a “climate policymaker”, as he mounted a full-throated defence of the US central bank’s independence from political influence.
In a speech delivered on Tuesday, the Fed chair said the central bank must steer clear of issues outside its congressionally mandated purview and instead maintain a narrow focus on keeping consumer prices stable, fostering a healthy labour market and ensuring the safety of the country’s banking system.
“It is essential that we 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 said at a conference hosted by Sweden’s central bank.
“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 added: “We are not, and will not be, a ‘climate policymaker’.”
Republican lawmakers have accused the Fed of overreaching its mandate by pledging to consider climate-related financial risks, an area in which Powell said on Tuesday the central bank had “narrow, but important, responsibilities” tied to 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,” he added.
In a panel that followed the remarks, Mervyn King, a former governor of the Bank of England, said central bank independence was a “great responsibility and it cannot be misused by trying to creep into areas, which have not been explicitly delegated by the appropriate political process”.
“I worry that people, in the great enthusiasm for doing good, are actually putting at risk central bank independence,” he said of climate-related issues.
Republican senators last year blocked the appointment of Sarah Bloom Raskin, Joe Biden’s pick to lead bank oversight at the Fed, after taking issue with her calls for regulators to more proactively address financial risks related to climate change.
Several other major central banks have advocated for expanding their remit to include policing of climate risks. Mark Carney, another former governor of the BoE, has been the leading supporter of such a shift, but it has also been pushed by others, including the European Central Bank.
Powell on Tuesday said central bank independence was particularly important if the Fed is to succeed in its battle to tame inflation, which is still running at multi-decade highs.
“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,” he said. “The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”
Since March, the Fed has raised its benchmark rate from near-zero to just under 4.5 per cent and plans to further squeeze the economy this year.
Democratic lawmakers have already called on the central bank to back off of its tightening plans, warning of unnecessary economic pain and excessive job losses.
“The tools that we have work and I think there’s nothing wrong with our mandates,” Powell told the panel.