Yahoo Finance Powell defends Fed taking 'measures that are not popular' to rein in inflation
Federal Reserve Chair Jerome Powell made the case in a speech on Tuesday for the Federal Reserve's independence, noting stable inflation is the foundation of a healthy economy and can require the central bank taking actions that are necessary, but not popular.
"The case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations," Powell said at the Symposium on Central Bank Independence in Stockholm, Sweden.
"Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But 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."
Powell did not explicitly mention the policy outlook in his speech.
Powell's comments come after a year that saw the Fed raise rates by a total of 4.25 percentage points, its most aggressive rate hiking campaign since the 1980s.
The Fed's next policy meeting will take place at the end of this month, with the central bank's next policy announcement due on Feb. 1. Investors are pricing in a 75% chance the Fed will raise interest rates by another 0.25% following this decision, according to data from the CME.
The Fed chair has repeatedly warned that bringing down inflation will be painful, arguing the central bank will remain steadfast in raising rates and holding them at elevated levels to combat high inflation even as markets are pricing in rate cuts later this year.
Powell's speech comes just two days before a key reading on inflation, which is expected to show price increases continued to slow in the final month of 2022. Economists expect inflation as measured by the consumer price index rose 6.1% in December, slower than the 6.6% increase seen in November.
The Federal Reserve targets 2% inflation.
Powell said the Fed needs to continuously earn independence by setting policy to reach full employment and price stability, and provide transparency in doing so.
In the area of bank regulation, Powell noted the Fed has a degree of independence where regulatory decisions are not influenced by political considerations.
Powell said the Fed should "resist the temptation" to broaden the central bank's scope to include social issues. He underscored 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."
And though Powell said decisions about policies to directly address climate change should be made by elected branches of government, he noted that, in his view, the Fed does have "narrow responsibilities" to supervise climate-related financial risks for banks.
"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," Powell said. "We are not, and will not be, a 'climate policymaker.'"
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