The Federal Reserve’s independence from political influence is central to its ability to battle inflation, but requires it stay out of issues like climate change that are beyond its congressionally-established mandate, Fed Chair Jerome Powell said on Tuesday.
“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. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” Powell said in prepared remarks to a forum on central bank independence sponsored by the Swedish central bank.
But “we should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities,” Powell said. “Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”
The need for the U.S. central bank to manage inflation through interest rates and other policy is “well understood and broadly accepted,” Powell said, and embodied in a federal law that charges the Fed with maintaining maximum employment and stable prices.
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