Inflation must be priority, not climate change, says Fed boss Powell

Climate change and social concerns should not divert attention from the fight against galloping inflation, warned central bank chiefs on both sides of the Atlantic yesterday.

Jerome Powell, head of the US Federal Reserve, said at a global conference that “we must stick to our knitting” as officials around the world battle the cost of living.

Bank of England Governor Andrew Bailey, meanwhile, expressed frustration at an ever-lengthening list of demands from the Treasury, leaving the Bank on “difficult ice”.

Central bankers around the world are battling decades of high inflation after the war in Ukraine drove up energy and food prices.

But in recent years they have also been called upon to address a much wider range of societal issues, from climate change to inequality, while going beyond their traditional job of controlling prices.

Speaking at a conference of central bankers, Powell said: “We must stick to our knitting and not stray to pursue perceived social benefits that are not closely tied to our legal goals and authorities. We are not and will not be a climate policy maker.’

Bailey told the Stockholm conference that while the bank’s mission of pursuing 2 percent inflation was enshrined in law, the Chancellor would also write to him “from time to time” to tell him about “other objectives of the government’s public policy’.

He said the letters seemed to have become “longer and more complicated” and that his predecessor, the only one, Mervyn King “used to get simpler letters.”

Bailey said, “The longer the letters get, the more prone you are to get into the world of value judgments. Then we are treading on difficult ice.’

Central banks have responded to rising inflation by aggressively raising interest rates and winding down huge asset purchase programs that had previously been used to stimulate growth.

But some argue that higher borrowing costs could hamper the investments needed to transition from fossil fuels to renewables.

Fewer bond purchases also reduce the ability of central banks to help finance the transition by shifting those purchases to green investments.

Bailey made it clear that while the Bank’s current move to sell its corporate bonds may not be the best way to combat climate change, it is the “right thing to do” in the fight against inflation.

He said, “You have to make these tough decisions. I’m sure we’re not very popular in some circles to do that, but I think it’s the right decision.’

King, who also attended the conference, said: “There are plenty of other people who can take action to combat climate change and I am concerned that people, in their great enthusiasm to do good, are jeopardizing central bank independence. to take.’

Many central bankers broadly accept the importance of tackling climate change, but there is division over how to do it.

European Central Bank interest rate setter Isabel Schnabel said her bank needs to step up efforts to make monetary policy more climate-friendly, possibly through its multi-trillion-euro bond holdings.