Powell Promises to Keep Fed's Climate Role Limited to Preserve Independence

Jerome Powell, Chair of the Federal Reserve, has stated that the central bank will not be a climate regulator. He has sought to draw a line around how far the bank will go in promoting a greener economy.
Powell said Tuesday that the Fed has narrow, but important, responsibilities regarding climate-related financial risks. However, he noted that without explicit congressional legislation, it would be inappropriate for the central bank to use its monetary policy or supervisory tools to promote a greener economy or to achieve other climate-related goals.
‍
We will not be a climate policymaker. We believe that climate change is a complex issue that requires a comprehensive and coordinated approach from the international community. We will continue to work with our partners to find effective solutions to this global challenge.
Powell didn't directly comment on the economic or monetary policy outlook in his prepared text. However, he did say that "restoring price stability when inflation is high can require measures that are not popular in the short term, such as raising interest rates to slow the economy."
‍
In three weeks, the Federal Open Market Committee will meet again to discuss the benchmark lending rate. Last year, the rate was raised from near zero to 4.25% to 4.5% in order to battle high inflation. This year, officials are eyeing a rate above 5%. However, they may choose to slow the pace of hikes at the next gathering.
Powell said that 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. Critics complain that the selection process is opaque and lacks accountability.
Powell has come under pressure from both Democrats and Republicans over how much the Fed should focus on climate change. In 2021, some Democratic lawmakers and left-leaning groups opposed his candidacy for a second term, arguing that Powell wasn't doing enough to combat global warming.
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 focus on its goals and not pursue other objectives. He added that restoring price stability can require unpopular measures such as slowing the economy.
‍
He said that the lack of direct political control over our decisions enables us to take the required measures without taking into account short-term political factors.
The Fed chair said that the pandemic revealed weaknesses in the non-bank financial sector, such as money market funds and the US Treasury market. He said the solutions to these problems lie in “changes to the structure” of these markets to make them more resilient.
He said that expanding the provision of central bank liquidity is not the desired response.
‍
Powell also said that the new arrangement of emergency lending, where the Fed now has to obtain prior approval from the Treasury Secretary before establishing a broad-based emergency lending facility, worked well during the pandemic.
Powell said that there had been a concern in the United States that the Dodd Frank Act had too limited the Federal Reserve's authority to do facilities and lending under Section 13.3.
He said that the new system actually worked quite well, adding that it was a very constructive process to have the elected government approving it during emergencies.