Federal Reserve Chairman Jerome Powell stressed the need for the central bank’s independence from political influence in a recent speech.
Powell made these remarks during a panel discussion on the subject hosted by Sweden’s central bank, the Sveriges Riksbank. The event hosted central bankers from around the world, including Bank of England Governor Andrew Bailey and European Central Bank member Isabel Schnabel. Powell’s statement primarily consisted of reasons the institution must remain free from political influence and its according responsibility.
Fed Not a “Climate Policymaker”
Powell recalled that the two primary goals of the Federal Reserve are to maintain price stability and achieve maximum employment. While the job market remains robust, the Fed has had to aggressively raise interest rates in order to quell inflation. Because these difficult choices are largely unpopular with voting consumers, Powell stressed that they must remain insulated from short-term political considerations.
“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,” Powell said. “The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”
Although necessary, Powell continued by saying that such an arrangement should be rare in a democratic society like the U.S. Consequently, the Fed must demonstrate that it takes this responsibility seriously by adhering to its mandate as closely as possible.
Powell concluded by responding to criticism regarding the institution’s position on climate change. He said that the Fed is not a “climate policymaker,” and that any such decisions should be made by the population through their elected representatives.
While markets were on tenterhooks for details about future Fed decisions, Powell’s remarks were distinctly devoid of any hints. The lack of any further rate hike indicators drew a relatively benign response from crypto markets. Bitcoin and Ethereum were up 0.27% and 0.33%, respectively, an hour after Powell’s statement.
Dimon Chimes In
Although Powell neglected to mention interest rate hikes, JPMorgan CEO Jamie Dimon recently provided predictions on the Fed’s next move. Dimon told CNBC that the Fed’s rate hikes might need to exceed current expectations, which currently stand at roughly 5-6%. He gave even odds to the prospect of an eventual rise to either 5% or 6%.
While exceeding these figures may be necessary, Dimon favors pausing to see the full impact of last year’s increases. “I’m on the side that it may not be enough,” Dimon said. “We were a little slow getting going. It caught up. I don’t think there’s any harm done by waiting three or six months.”
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