Fed Chairman Powell says inflation should be our priority, not climate change or social concerns
Central bank chiefs from both sides of the Atlantic warned yesterday that climate change and social concerns must not be allowed to distract from the fight against accelerating inflation.
“We must hold on to our knits,” Jerome Powell, chairman of the US Federal Reserve, told a global conference as officials grapple with cost of living crises around the world.
Meanwhile, Bank of England Governor Andrew Bailey expressed frustration at a lengthy list of demands from the Treasury leaving the bank in a state of “hard ice”.
Fighting Inflation: “We must stick to our inflation,” Jerome Powell, chairman of the US Federal Reserve, told a global conference as officials grapple with the cost of living around the world.
Central bankers around the world have been battling high inflation for decades after the war in Ukraine sent energy and food prices soaring.
But in recent years, they’ve also been asked to tackle a much broader range of societal issues from climate change to inequality, sitting outside their traditional remit of keeping prices in check.
Powell told a conference of central bankers: “We must hold our ground and not wander off in pursuit of perceived social benefits that are inextricably linked to our goals and legal powers. We are not and will not be a climate policy maker.
Bailey told the conference in Stockholm that while the bank’s mission to target 2 per cent inflation is set out in law, the chancellor will also write “from time to time” to tell him about “other public policy goals the government has”.
He said the letters seemed to be getting “longer and more complex” and that his predecessor – but Mervyn King – “used to have simpler letters”.
“The longer the characters, the more you tend to get into the realm of having to exercise value judgments,” Bailey said. We’re on hard ice at that point.
Central banks responded to rising inflation by sharply raising interest rates and scaling back massive asset purchase plans previously deployed to stimulate growth.
But some argue that high borrowing costs could hamper the investments needed to transition from fossil fuels to renewables.
Lower bond purchases reduce the scope for central banks to help fund the transition by skewing those purchases toward green investments.
Bailey explained that while the bank’s current process of selling its corporate bonds may not be the best for climate change, it was “the right thing to do” in fighting inflation.
He said: You have to make these difficult decisions. I’m sure we’re not very popular in some circles for doing this but I think it’s the right judgment.
“There are a lot of other people who can take measures to combat climate change and I worry that people, in their great enthusiasm to do good, are putting central bank independence at risk,” said King, who also attended the conference.
Many central bankers widely accept the importance of tackling climate change but there is a division over how to do so.
Isabelle Schnabel, the European Central Bank’s rate-setter, said her bank should step up efforts to make monetary policy more climate-friendly, possibly through its multi-trillion-euro bond holdings.