New York
CNN
—
US Federal Reserve (Fed) Chairman Jerome Powell made his first public appearance of the year on Tuesday, stressing the importance of central bank independence and a commitment to contain inflation.
Powell said during a panel discussion at an event hosted by Sweden’s central bank, Sveriges National Bank, that the painful rate hikes the Fed is implementing to deal with high prices have made officials particularly popular. He said he didn’t do it.
But they are necessary measures, he pointed out. But restoring price stability at a time of high inflation may require unpopular measures in the short term, as interest rates are raised to slow the economy. ”
“Having no direct political control over our decisions allows us to take these necessary steps without considering short-term political factors,” Powell added.
He also argued that Federal Reserve officials “stick to our knitting” and wander off to pursue perceived social interests that are not closely linked to our statutory goals and mandates. He highlighted climate change as a prime example of why this should not happen.
The Federal Reserve “will not be a climate policy maker,” he said.
The US Central Bank recently launched a voluntary pilot program calling on six large banks to test their stability under various climate event scenarios. The introduction of this no-penalty program has led some politicians to accuse central banks of pushing their political agenda.
“Today, some analysts are asking whether it is appropriate, prudent, and consistent with existing mandates to incorporate perceived risks related to climate change into banking supervision,” Powell said. “In my view, the Fed has narrow but significant responsibilities with respect to climate-related financial risks. We reasonably expect banks to require supervisors to understand and appropriately manage material risks, including the financial risks of climate change.”
Powell did not mention his policy outlook in his speech.
US inflation (as measured by the Labor Department’s Consumer Price Index) has been steadily declining over the past five months. This allowed the Fed to begin easing the scale of historically high rate hikes aimed at cooling the economy and combating inflation.
Eurozone inflation, on the other hand, remained at an impressive 9.2%, although it eased in November-December. “Inflation remains too high and is expected to stay above target for a long time, so we expect further significant rate hikes,” ECB President Christine Lagarde said last month.
“Compared to the Fed, we have more room to cover. We still have a long way to go,” she added.
Meanwhile, the Bank of England has also warned that inflation, at its highest level since the 1980s, is going nowhere. Bank of England chief economist Hugh Pill said this week that inflation could last longer than expected despite the recent drop in wholesale energy prices and the economy’s brink of recession.
These three central banks are battling different situations, but they share similar strategies.
Central banks defended the importance of institutional independence and credibility.
The minutes of the Fed’s December meeting, released last week, noted that the policy committee “continues to make decisions on a meeting-by-meeting basis,” giving options on the magnitude of rate hikes at its next monetary policy decision on Feb. 1. left.
No policy maker predicted that a cut in bank benchmark borrowing rates would be appropriate this year. Officials welcomed the recent softening in inflation, but stressed that the Fed’s “pivot” needed “substantially more evidence”.
Last week’s employment data further muddled the picture, showing that while wage growth has slowed, employment remains strong.
Thursday’s December CPI will also provide investors with useful clues as to whether US inflation has cooled sufficiently.
Encouraging data could strengthen consensus forecasts for February’s 1/4-point rate hike, a shift from December’s 0.5-point rate hike, and the past four 3/4-point rate hikes .
