Fed Chair Powell: “Measures that are not popular” are needed to reduce inflation.

Fed Chair Powell: “Measures that are not popular” are needed to reduce inflation.

In his first public appearance of the year on Tuesday, Federal Reserve Chairman Jerome Powell emphasized the value of central bank independence and his dedication to bringing down inflation.

During a panel discussion at an event sponsored by Sweden’s central bank, the Sveriges Riksbank, Powell noted that the painful rate hikes the Fed is implementing to combat rising prices don’t make officials particularly popular.

However, he pointed out that they are a vital precaution: “Price stability is the cornerstone of a sound economy and offers the general public incalculable benefits over time. However, when inflation is excessive, maintaining price stability may necessitate actions that are unpopular in the near term when interest rates are increased to slow the economy.

Powell said, “The lack of direct political control over our judgments enables us to take these important actions without taking into account short-term political factors.

The Fed officials “should’stick to our knitting’ and not wander off to pursue perceived societal benefits that are not intimately tied to our statutory aims and authority,” he continued, citing climate change as a great example.

He declared that the Fed would not “be a climate policymaker.”

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The six largest banks are required to assess their stability under various climate event scenarios as part of a voluntary pilot program that was recently established by the US central bank. Some lawmakers have claimed that the central bank is supporting a political agenda as a result of the program’s establishment and the fact that there are no penalties attached to it.

Powell stated on Tuesday that “several analysts now question whether it is prudent, wise, and consistent with our existing duties to include into bank supervision the perceived risks connected with climate change.” “In my opinion, the Fed does have specific but significant obligations addressing financial concerns related to climate change. These obligations are closely related to those we have regarding bank oversight. The general public has a right to anticipate that regulators will demand that banks comprehend and properly manage their significant risks, particularly those related to climate change.

In his remarks, Powell made no indication of his outlook on policy.

The Consumer Price Index of the Labor Department, which measures US inflation rates, has been declining over the past five months. This has made it possible for the Fed to begin reducing the scale of its historically large rate increases intended to slow the economy and combat rising prices.

While still alarmingly high at 9.2%, inflation in the Eurozone actually decreased between November and December. Last month, ECB President Christine Lagarde stated that she anticipates “substantially more” interest rate increases since inflation is still too high and is expected to exceed our target for an extended period of time.

“We have more ground to cover as compared to the Fed. We still have more time,” she remarked.

While this is going on, the Bank of England has also issued a warning that inflation, which is currently at its highest level since the 1980s, is not going away. Huw Pill, the chief economist at the Bank of England, suggested this week that inflation may last longer than anticipated despite recent drops in wholesale energy costs and a near-recessionary economy.

These three central banks are engaged in conflict under various circumstances, but they employ the same tactic: Continue to tighten.

The central bankers defended the significance of credibility and independence for their institutions, which have come under pressure as it is alleged that policymakers have allowed soaring inflation to go unchecked for an excessive amount of time.

NEW YORK, NEW YORK – JULY 28: On July 28, 2022, in New York City, a “now hiring” sign is visible in a window in Manhattan. (Image courtesy of Spencer Platt/Getty Images)
A soft landing or a recession? The Fed’s December meeting minutes, which were published last week, noted that the policymaking committee would “continue to make decisions meeting by meeting,” leaving options open for the size of rate hikes at the subsequent monetary policy decision on February 1. Here are five reasons to be cautiously optimistic about 2023.

The benchmark borrowing rate for the bank has not been anticipated to be lowered by officials this year. Additionally, officials emphasized that “much more evidence” was needed before the Fed could “pivot,” even though they appreciated the recent easing of inflation.

The picture was further complicated by last week’s jobs data, which revealed that wage growth slowed although employment remained robust.

Investors can use the CPI for December, which is due out on Thursday and will be the first inflation check of the year, to determine whether US price increases are sufficiently slowing.

Positive data could support consensus predictions, which call for a quarter-percentage point increase in interest rates in February, down from a half-point increase in December and four previous three-quarter-point increases.

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