1 of 3 | U.S. Federal Reserve Chair Jerome Powell said monetary policies should be made without unnecessary intervention from lawmakers who may have their own short-term agendas. File Pool Photo by Brendan Smialowski/UPI | License Photo
Jan. 10 (UPI) -- U.S. Federal Reserve Chair Jerome Powell stressed Tuesday that monetary policy decisions designed to arrest inflation might not be popular on Capitol Hill, though autonomy is an essential part of the bank's ability to function.
In an address Tuesday to the Symposium on Central Bank Independence in Sweden, Powell said it was necessary to shield monetary policy decisions from short-term political whims. Policy actions meant to stabilize the economy might not align with the interests of lawmakers, but the central bank is not engaged in a popularity contest.
"The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors," he said. "I believe that the benefits of independent monetary policy in the U.S. context are well understood and broadly accepted."
Congress tasked the Federal Reserve with maximizing employment, moderating long-term interest rates and stabilizing prices when it established the central bank in 1913. Accountability usually rests with the Government Accountability Office and an external auditor selected by bank officials.
Last year, a handful of Democrats, led by Sen. Elizabeth Warren, D-Mass., sent a letter to the Fed expressing concern that aggressive rate hikes meant to cool consumer-level inflation -- which peaked above 10% on an annual basis last summer - would cause undo damage to an economy still reeling from the COVID-19 pandemic.
At the time, Powell had warned that job losses may be an unfortunate consequence of the bank's efforts to lower inflation, though the latest federal jobs report showed the labor market remained resilient.
On Tuesday, he said it may be necessary to ruffle some political feathers to achieve the necessary goal of stabilizing prices.
"Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time," he said. "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 Fed embraced an aggressive rate policy for much of 2022, bringing its lending rate to 4.25%. More rate hikes are expected this year, though there are internal debates within the Fed over just how much.
Future decisions, meanwhile, will follow recent warnings from both the World Bank and the International Monetary Fund that much of the global economy will enter into recession this year.
U.S. consumer-level inflation increased by 7.1% over the 12-month period ending in November, down from double-digit levels. An update for the 12-month period to December is out Thursday.
Powell also faced pressure from members of Congress including Reps. Alexandria Ocasio-Cortez, D-N.Y., and Rashida Tlaib, D-Minn., who called on President Joe Biden to replace Powell with someone who would include climate issues and social injustice in their mandate, when his first tenure as chairman was coming to an end in 2021.
On Tuesday, Powell asserted that the Fed is not a "climate policymaker" and should not get involved in climate issues outside of assuring that major banks are equipped to handle severe climate events.
"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," he said. "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."