Federal Reserve Chair Jerome Powell sought to draw a line around how far the central bank will use its powers to promote a greener economy, vowing it will not be a climate regulator.
“The Fed does have narrow, but important, responsibilities regarding climate-related financial risks,” Powell said Tuesday in brief prepared remarks on central bank independence at a forum in Stockholm. “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.”
“We are not, and will not be, a ‘climate policymaker.’”
Powell didn’t directly comment on the economic or monetary policy outlook in his prepared text. He did say that “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 Fed chair is three weeks away from the next meeting of the Federal Open Market Committee, which last year raised its benchmark lending rate from near zero to a range of 4.25% to 4.5% to battle high inflation. Officials are eyeing raising rates to above 5% this year, though they may again slow the pace of hikes at the next gathering.
Powell said the Fed’s independence has served the public well, and added that the central bank “must continuously earn” it by achieving its goals and providing transparency to the public and Congress.
The comments come as the Fed is facing multiple requests from Congress to be more transparent about the selection of its regional bank presidents which are picked in a process that critics call opaque and complain has little accountability about how the decisions are made.
Powell has faced competing pressures from both Democrats and Republicans over the extent to which the Fed focuses on climate change. In 2021, some Democratic lawmakers and left-leaning groups opposed his candidacy for a second term, saying Powell wasn’t doing enough to combat global warming.
At the same time, the central bank under Powell has increasingly turned its focus to financial risks presented by climate change, attracting criticism from Republican lawmakers.
Powell said the central bank 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.” He added that restoring price stability can require unpopular measures such as slowing the economy.
“The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” he said.
