Jerome H Powell: Central Bank independence and the mandate - evolving views

Speech by Mr Jerome H Powell, Chair of the Board of Governors of the Federal Reserve System, at the International Symposium on Central Bank Independence, panel on "Central Bank independence and the mandate - evolving views", organised by Sveriges Riksbank, Stockholm, 10 January 2023.

Central bank speech  | 
11 January 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. 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.

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.