According to Federal Reserve Chair Jerome Powell, the Fed must stay out of politically-charged issues that are beyond its congressionally established mandate (e.g. climate change), as its independence from political influence is core to its ability to fight inflation.
"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 decisions allows us to take these necessary measures without considering short-term political factors," Powell said in a speech to Sveriges Riksbank, Sweden’s central bank.
"We 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," Powell continued. "Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence."
Powell said the Fed is not and will not be a “climate policymaker,” although the Fed's regulatory powers do give it a "narrow" role in ensuring that financial institutions "appropriately manage" the risks they face from climate change.
"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. "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.”
The speech constituted Powell’s first public remarks since the Republican Party gained control of the U.S. House of Representatives and elected a new Speaker of the House, after which it began selecting new chairs for the committees that oversee the Fed and other federal government operations.
Despite Powell prioritizing building strong relationships with elected officials from both sides of the aisle during his five years as chair, he has faced criticism from some Republicans who believe he is allowing the Fed to wander into areas like climate change and the economics of race and away from its primary responsibilities.
However, in actuality, throughout Powell’s tenure in the top job, his view of the Fed's role has recognized the more divided politics in the United States and has stood in stark contrast to the views of major central banks in Europe, many of which have incorporated into their policymaking green economy efforts.
In order to maintain authority over the Fed’s core mission of managing inflation, "we need to deserve it, and that means stick to that work and don’t look for broader things," Powell said. "We shouldn’t be getting ahead of where the public is if there’s no specific mandate. In the case of the U.S., that’s a particularly salient point."