Federal Reserve chairman Jerome Powell ventured to the homeland of ABBA today but there was no Mamma Mia moment, and markets and investors were left relieved at the lack of any hawkish comments.
Instead, in a speech in Stockholm, Powell addressed the importance of the Fed’s monetary policy independence and where its areas of responsibility lie.
“The case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations,” he stated.
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He pointed out 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."
But, “the absence of direct political control over our decisions allows us to take these necessary measures," he continued.
Powell also stressed that the Fed 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.”
He related this to climate change in particular. Powell said while the Fed does have narrow responsibilities regarding climate-related financial risks, “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.”
“We are not, and will not be, a climate policymaker,” he concluded.
Powell’s speech was taken in its stride by the markets.
Michael Hewson at CMC Markets said, “There had been an expectation that today’s comments from Fed chairman Jay Powell in Stockholm might contain a hawkish narrative, however he confined himself to talking about climate change, and the Fed’s reluctance to become involved in policy around that, rather than the investment climate.”
“This lack of comment on monetary policy matters has helped lift markets.”
Contact the author at Jeremy@proactiveinvestors.com