For release on delivery
9:00 a.m. EST (3:00 p.m. local time)
January 10, 2023
Panel on "Central Bank Independence and the Mandate-Evolving Views"
Remarks by
Jerome H. Powell
Chair
Board of Governors of the Federal Reserve System
at
Symposium on Central Bank Independence
Sveriges Riksbank
Stockholm, Sweden
January 10, 2023
I will address three main points. First, the Federal Reserve's monetary policy
independence is an important and broadly supported institutional arrangement that has
served the American public well. Second, the Fed must continuously earn that
independence by using our tools to achieve our assigned goals of maximum employment
and price stability, and by providing transparency to facilitate understanding and effective
oversight by the public and their elected representatives in Congress. Third, we 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.
Central bank independence and transparency
On the first point, the case for monetary policy independence lies in the benefits
of insulating monetary policy decisions from short-term political considerations.1 Price
stability is the bedrock of a healthy economy and provides the public with immeasurable
benefits over time. But 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. The absence of direct political control over our decisions allows us to take
these necessary measures without considering short-term political factors. I believe that
the benefits of independent monetary policy in the U.S. context are well understood and
broadly accepted.2
1
In the past several decades, support for arrangements in which central banks made monetary policy
decisions in pursuit of legislated goals of economic and price stability has been buttressed by theoretical
and empirical research contributions, including by Kenneth Rogoff, on the benefits of central bank
independence. See Rogoff (1985) as well as the discussion below of the distinction between goal
independence and instrument independence. With regard to empirical evidence on the matter, see Alesina
and Summers (1993) as well as the subsequent research literature of the past three decades, including
Crowe and Meade (2008). Bernanke (2010) and Tucker (2018) provide overviews of the development of
central bank independence.
2
Our situation is different from that of the European Central Bank, whose independence is enumerated in
Article 130 of the Treaty on the Functioning of the European Union, which is available from the European
Union at https://lexparency.org/eu/TFEU/ART_130.
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In a well-functioning democracy, important public policy decisions should be
made, in almost all cases, by the elected branches of government. Grants of
independence to agencies should be exceedingly rare, explicit, tightly circumscribed, and
limited to those issues that clearly warrant protection from short-term political
considerations.
With independence comes the responsibility to provide the transparency that
enables effective oversight by Congress, which, in turn, supports the Fed's democratic
legitimacy. At the Fed, we treat this as an active, not passive, responsibility, and over the
past several decades we have steadily broadened our efforts to provide meaningful
transparency about the basis for, and consequences of, the decisions we make in service
to the American public. We are tightly focused on achieving our statutory mandate and
on providing useful and appropriate transparency.3
Sticking to our mandate
It is essential that we stick to our statutory goals and authorities, and that we resist
the temptation to broaden our scope to address other important social issues of the day.4
Taking on new goals, however worthy, without a clear statutory mandate would
undermine the case for our independence.
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In the area of bank regulation, too, the Fed has a degree of independence, as do
the other federal bank regulators. Independence in this area helps ensure that the public
can be confident that our supervisory decisions are not influenced by political
considerations.5 Today, some analysts ask whether incorporating into bank supervision
the perceived risks associated with climate change is appropriate, wise, and consistent
with our existing mandates.
Addressing climate change seems likely to require policies that would have
significant distributional and other effects on companies, industries, regions, and nations.
Decisions about policies to directly address climate change should be made by the elected
branches of government and thus reflect the public's will as expressed through elections.
At the same time, in my view, the Fed does have narrow, but important,
responsibilities regarding climate-related financial risks. These responsibilities are
tightly linked to our responsibilities for bank supervision.6 The public reasonably
expects supervisors to require that banks understand, and appropriately manage, their
material risks, including the financial risks of climate change.
But without explicit congressional legislation, 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.7 We are not, and will not be, a "climate policymaker."
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References
Alesina, Alberto, and Lawrence H. Summers (1993). "Central Bank Independence and
Macroeconomic Performance: Some Comparative Evidence," Journal of Money,
Credit and Banking, vol. 25 (May), pp. 151-62.
Bernanke, Ben S. (2010). "Central Bank Independence, Transparency, and
Accountability," speech delivered at the Institute for Monetary and Economic
Studies International Conference, Bank of Japan, Tokyo, Japan, May 25,
https://www.federalreserve.gov/newsevents/speech/bernanke20100525a.htm.
Board of Governors of the Federal Reserve System (2022). "Federal Reserve Board
Invites Public Comment on Proposed Principles Providing a High-Level
Framework for the Safe and Sound Management of Exposures to Climate-Related
Financial Risks for Large Banking Organizations," press release, December 2,
https://www.federalreserve.gov/newsevents/pressreleases/other20221202b.htm.
Crowe, Christopher, and Ellen E. Meade (2008). "Central Bank Independence and
Transparency: Evolution and Effectiveness," European Journal of Political
Economy, vol. 24 (December), pp. 763-77.
Debelle, Guy, and Stanley Fischer (1994). "How Independent Should a Central Bank
Be?" in Goals, Guidelines, and Constraints Facing Monetary Policymakers,
proceedings of a conference held in North Falmouth, Massachusetts, in June
1994. Boston: Federal Reserve Bank of Boston, pp. 195-221,
www.bostonfed.org/economic/conf/conf38/conf38f.pdf.
Rogoff, Kenneth (1985). "The Optimal Degree of Commitment to an Intermediate
Monetary Target," Quarterly Journal of Economics, vol. 100 (November), pp.
1169-89.
Tucker, Paul (2018). Unelected Power: The Quest for Legitimacy in Central Banking
and the Regulatory State. Princeton, N.J.: Princeton University Press.