Jerome Powell Says Bringing Down Inflation Could Fuel Political Opposition

The Federal Reserve is firmly committed to reducing inflation even as raising interest rates to curb economic growth could prompt a policy blow, Chairman Jerome Powell said.

“Price stability is the foundation of a healthy economy and provides the public with immeasurable benefits over time,” said Mr. Powell on Tuesday in remarks prepared for delivery at a panel discussion in Stockholm. “But restoring price stability when inflation is high may require measures that are unpopular in the short term as we raise interest rates to slow the economy.”

The Fed’s institutional arrangements — in which policymakers set interest rates without direct control from Congress or the White House, sometimes referred to as its independence — allow the central bank “to take these necessary measures without regard to political factors short term”, Mr. Powell said.

The prepared remarks of Mr. Powell did not comment otherwise on the Fed’s future interest rate decisions and instead emphasized the importance of the central bank’s independence and the steps needed to preserve that policy-making autonomy. He addressed a conference focused on central bank independence that was convened by Sweden’s central bank.

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The Fed aggressively raised its benchmark short-term interest rate last year, from near zero in March to just below 4.5% by the end of the year. Officials have signaled their intention to raise the rate above 5% this year, extending the fastest sequence of hikes since the early 1980s to combat inflation, which has also been near 40-year highs.

Mr. Powell was confirmed last spring with broad bipartisan support in the Senate for a second four-year term as Fed chairman. But some senior Democratic lawmakers have recently expressed alarm about the Fed’s rapid rate hike.

Senate Banking Committee Chairman Sen. Sherrod Brown (D., Ohio) and the top Democrat on the House Financial Services Committee, Rep. Maxine Waters (D., Calif.), sent separate letters to Mr. Powell recently. autumn warning against increasing the rate of excess. “You must not shirk your responsibility to ensure that we have full employment,” wrote Mr. Brown in October.

Other critics have been more blunt. “There’s a big difference between landing a plane and crashing it,” Sen. Elizabeth Warren (D., Mass.) said at a briefing in November. “Powell risks pushing our economy off a cliff”.

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Mr. Powell has said the central bank is trying to avoid unnecessary economic damage, including rising unemployment, by slowing the pace of its rate hikes. But he has repeatedly warned that there is likely to be some pain in easing high inflation.

In his speech, Mr. Powell said he believes “the benefits of independent monetary policy in the US context are well understood and widely accepted.” He also said that grants of independence to regulatory agencies should be “extremely rare, clear, tightly circumscribed and limited to those matters that clearly warrant protection from short-term political considerations.”

In exchange for such autonomy, Mr. Powell said the Fed “must stick to our knitting” and not get lost” in addressing policy issues not directly related to its mandate to keep inflation low and support a strong labor market.

Some Democrats and environmental groups have pressured the central bank to take a more activist role in scrutinizing bank lending decisions to address climate change. Mr Powell argued on Tuesday for a much more limited role in which the Fed monitors how banks are managing a range of financial risks, including those from climate change.

“Without clear legislation from Congress, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or achieve other climate-based goals,” he said. “We are not and will not be a ‘climate policy maker’.”

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