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

Climate change and social concerns must not be allowed to distract from the fight against galloping inflation, central bank chiefs from both sides of the Atlantic warned yesterday.

Jerome Powell, head of the US Federal Reserve, told a global conference ‘we should stick to our knitting’ as officials battle cost of living crises across the globe.

Bank of England governor Andrew Bailey, meanwhile, expressed his frustration about a lengthening list of demands from the Treasury leaving the Bank on ‘difficult ice’.

Central bankers across the globe are battling decades-high inflation after the war in Ukraine pushed up energy and food prices.

But in recent years they have also been asked to address a much wider range of societal issues from climate change to inequality, sitting outside their traditional remits of keeping prices under control.

Powell told a conference of central bankers: ‘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. We are not, and will not be, a climate policymaker.’

Bailey told the conference in Stockholm that while the Bank’s mission to target 2 per cent inflation was enshrined in law, the Chancellor would also ‘from time to time’ write to tell him about ‘other public policy objectives that the Government has’.

He said the letters seemed to have become ‘longer and more complicated’ and that his predecessor-but-one Mervyn King ‘used to get simpler letters’. 

Bailey said: ‘The longer the letters get, the more you tend to get into the world of having to exercise value judgments. We’re treading on difficult ice at that point.’

Central banks have responded to surging inflation with aggressive interest rate hikes and the scaling back of vast asset purchase schemes that had previously been deployed to stimulate growth. 

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

Less bond buying also reduces the scope for central banks to help fund the transition by skewing those purchases towards green investments.

Bailey made clear that while the Bank’s current operation to sell its corporate bonds might not be the best for climate change it was the ‘right thing to do’ in the inflation fight. 

He said: ‘You have to take these hard decisions. I’m sure we’re not very popular in some circles for doing that but I think it’s the right judgment.’

King, who also attended the conference, said: ‘There are plenty of other people who can take measures to combat climate change and I worry that people, in their great enthusiasm for doing good, are actually putting at risk central bank independence.’

Many central bankers broadly accept the importance of addressing climate change but there is division about how to do so. 

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