Wall Street Times

The Fed makes the hard decisions, but Powell calls for freedom from politics

The Fed: After prices hit unbelievable heights in decades last year, the Federal Reserve launched an effort to lower inflation.

Despite this, their efforts have met obstacles, as political interference has limited the Fed’s decision-making power.

Jerome Powell, the chairman of the Fed, recently addressed the matter.


Jerome Powell reiterated on Tuesday that the central bank must be free from political influence to deal with excessive inflation effectively.

The Fed Chairman cautioned Sweden’s Riksbank that aggressive steps are necessary to stabilize prices, even if they lead to politically unpopular criticism.

“Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time,” said Powell.

“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.”

“The absence of direct political control over our decision allows us to take these necessary measures without considering short-term political factors.”

The Fed Chair commented on the central bank’s independence during the meeting.

After the remarks, there was an exchange of questions and answers.


Jerome Powell’s statement made no references to the direction of the policy for 2023.

Last year, the Federal Reserve raised interest rates seven times, increasing a record-breaking 4.25 percentage points.

The increases raise the chances of even more hikes this year.


The Federal Reserve’s decisions are regularly harshly criticized.

Public officials frequently complain and criticize, but Powell’s Fed has drawn flak from both major political parties.

Prices increased under his leadership, which former president Donald Trump admonished.

Democrats like progressive senator Elizabeth Warren have spoken out against the most recent interest rate increases.

President Joe Biden has not commented on the Fed’s actions because he thinks the Fed should be in charge of directly handling inflation.

Jerome Powell asserted that his choices were unaffected by politics despite the criticism.

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Calls for climate change

In his statement on Tuesday, Powell addressed several lawmakers’ call for the Fed to utilize its regulatory authority to tackle climate change.

Four of the top GOP members of the House Financial Services Committee wrote him a letter last year.

The Republicans argue that the Federal Reserve shouldn’t control consumer demand or decide which businesses get more funding.

Powell contends that the Fed should maintain its current track rather than deviate from pursuing perceived societal benefits that are only loosely tied to its legal obligations and goals.

The Fed’s notion that central banks evaluate how financially prepared they are for climate-related calamities (such as storms and floods) comes closest to what these institutions should be doing regarding climate-related activities.

“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections,” added Powell.

“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 we will not be, a ‘climate policymaker.'”

Climate program

The six central US banks are included in a “scenario analysis” for the Fed’s pilot project starting this year.

Through the analysis, the resilience of an institution to severe climatic events will be assessed.

The test will resemble the “stress tests” the Fed employs to determine how banks could respond to realistic economic downturns.

The following banks are taking part in the exercise:

  • Bank of America
  • Citigroup
  • Goldman Sachs
  • JPMorgan Chase
  • Morgan Stanley
  • Wells Fargo


Jerome Powell emphasized the value of central bank independence in his remarks and underlined that the American people benefit from it.

According to Powell, the independence of central banks permits them to confront difficult decisions.

“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,” he added.

Congress set the greatest employment and price stability goals, allowing the Fed and its staff to remain autonomous and use their resources to fulfill their objectives.

“Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence,” said Powell.


The Fed is not a ‘climate-policy maker,’ Powell says

Powell says Fed might have to make unpopular decisions to stabilize prices