January 12, 2023: -Federal Reserve Chairman Jerome Powell underscored the need for the central bank to be open to political influence while it handles persistently high inflation.
In a speech given to Sweden’s Riksbank, Powell noted that stabilizing prices needs making tough talks that can be unpopular politically.
“Cost stability is the basic of a healthy financial and provides the public with immeasurable over time. But restoring cost stability when inflation is high requires measures that are not popular in the short term as we increase the interest rates to slow the economy,” the chairman stated in prepared remarks.
“The absence of direct political control more than our decisions permits us to take these necessary steps without considering short-term political factors,” he stated.
Powell’s remarks came at a forum to talk about central bank independence and were to be followed by a discussion session.
The speech did not have any direct clues regarding the policy headed for a Fed that had interest rates for seven periods in 2022, for a total of 4.25 percentage points, and has indicated that better increases likely are on the way this year.
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While criticism of Fed actions by elected leaders is often made in quieter tones, the Powell Fed has encountered vocal opposition from both sides of the political aisle.
Former President Donald Trump ripped the central bank when it increased rates during his administration. At the same time, progressive leaders like Sen. Elizabeth Warren, D-Mass., criticized the current round of hikes. President Joe Biden has mostly resisted comments on Fed moves, noting that it is primarily the central bank’s commitment to tackle inflation.
Powell has stated that political factors have not weighed on his actions.
In another part of the speech, he addressed calls from a few lawmakers for the Fed to use its regulatory powers to talk about climate transfer. Powell stated that the Fed should “stick to our knitting and not roam off to pursue thinking social benefits that are not connected to our statutory aims and authorities.”
While the Fed has questioned big banks to examine their readiness in case of major climate-related events like hurricanes and floods, Powell added that’s as far as it should go.