Fed Chair Powell: Bringing down inflation requires ‘measures that are not popular’
New York CNN –
Federal Reserve Chairman Jerome Powell made his first public appearance of the year on Tuesday, stressing the importance of central bank independence and his commitment to reducing inflation.
The painful rate hikes the Fed is implementing to tackle high prices don’t make officials particularly popular, Powell said during a panel discussion at an event hosted by Sweden’s central bank, Sveriges Riksbank.
But they are a necessary measure, he emphasized: “Price stability is the foundation of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high may require measures that are not popular in the short term, as we raise interest rates to slow the economy.”
“The lack of direct political control over our decisions allows us to take these necessary measures without regard to short-term political factors,” Powell added.
He also pointed to climate change as a prime example of why officials at the Fed “must ‘stay in our knitting'” and not wander off to pursue perceived social benefits that are not closely related to our goals and statutory authorities.
The Fed will not be “a climate policymaker,” he said.
The US central bank recently created a voluntary pilot program that calls on the six largest banks to test their stability under various climate event scenarios. The introduction of the program, which has no penalty attached to it, has led some politicians to accuse the central bank of promoting a political agenda.
“Today, some analysts question whether including in bank supervision the perceived risks associated with climate change is appropriate, wise and consistent with our existing mandates,” Powell said Tuesday. “In my view, the Fed has narrow but important responsibilities regarding climate-related financial risks. These responsibilities are closely related to our responsibilities for banking supervision. The public reasonably expects supervisors to require banks to understand and appropriately manage their material risks, including the financial risks of climate change.
Powell did not explicitly mention his view of the policy in his speech.
US inflation rates (as measured by the Labor Department’s Consumer Price Index) have fallen steadily over the past five months. That has enabled the Fed to begin easing the size of its historically high rate hikes, which were intended to cool the economy and combat rising prices.
Inflation in the Eurozone, meanwhile, remains at an impressive 9.2% – although it eased between November and December. ECB President Christine Lagarde said last month that she expects interest rate hikes to rise “significantly further because inflation remains very high and is expected to remain above our target for a long time.”
“If you compare with the Fed, we have more ground to cover. We have more to go,” she added.
The Bank of England, meanwhile, has also warned that inflation, still at its highest level since the 1980s, is not going anywhere. The BoE’s chief economist, Huw Pill, said this week that inflation could persist for longer than expected, despite recent falls in wholesale energy prices and an economy on the brink of recession.
These three central banks are fighting in different conditions, but they share a similar battle strategy: Keep tightening.
Central bankers defended the importance of independence and credibility for their institutions, which has come under fire as policymakers are accused of letting rising inflation go unchecked for too long.
Minutes of the Fed’s December meeting, released last week, noted that the policy committee will “continue to make decisions on a meeting-by-meeting basis,” leaving options open for the size of the rate hike in the next policy decision. monetary on February 1.
No policymaker has predicted it would be appropriate to cut the bank’s key lending rate this year. And while officials welcomed the recent softening of inflation, they stressed that “substantially more evidence” was needed for a “Fed pivot.”
Last week’s jobs report further clouded the picture, showing that employment remained strong while wage growth eased.
Thursday’s CPI for December – which will be the first inflation check of the new year – will also provide useful clues to investors on whether US price growth is softening sufficiently.
The encouraging data could bolster consensus estimates calling for a quarter-percentage-point interest rate hike in February, a downward shift from December’s half-point hike and four previous three-quarter hikes.