Central banks risk undermining independence by meddling in social issues and trying to tackle climate change, the Federal Reserve Chair has warned.
Jerome Powell said it was important that institutions “resist the temptation” to deal with “social problems” that go beyond their remit.
His comments are likely to be seen as a rebuke to the Bank of England, which has been criticized by politicians for its handling of climate change. Threadneedle Street has described managing financial risk from climate change as a “key aspect” in fulfilling its “mission” to “promote human well-being”. It has also been accused of mishandling the inflationary crisis by acting late and slowly.
Mervyn King, who was Governor of the Bank of England for a decade until 2013, echoed Mr Powell’s comments on Tuesday as he warned that central bank independence came with “great responsibilities”.
At the same conference in Sweden, Lord King said: “It cannot be abused by trying to sneak into areas that have not been explicitly delegated through the appropriate political process.
“There are many other people who can take action on climate change. And I worry that people, in their great enthusiasm to do good, are actually endangering central bank independence.”
Mr Powell called climate change an “inappropriate” issue for unelected central bankers to address.
He told the audience in Stockholm: “We should stick to our rope and not stray to pursue perceived social benefits that are not closely linked to our legal goals.
“We [Federal Reserve] we are not and will not be climate politicians.
“New targets, however worthy, without addressing a clear legal mandate would undermine the fall of our independence.”
The Fed has come under fire in the past from congressional Republicans who have accused it of going too far in promising to address climate-related financial risks.
Last year, Republicans blocked the appointment of Sarah Bloom Raskin as the Fed’s top banking regulator after she expressed support for using financial rules to combat climate change.
Mr Powell said it was critical that decisions outside the Fed’s purview on issues such as climate change were made by elected politicians that “reflect the will of the public as expressed through elections” given the cost to budgets and companies for greener development would rise.
Politicians in the UK have also criticized the Bank of England for its approach to climate change after it warned the city could lose more than £340 billion from global warming.
MPs last May said Threadneedle Street should “focus on the fundamentals of the money economy” such as: B. the taming of rampant inflation, which reached its highest level in 41 years as energy costs rose.
Last year she also examined how exposed financial institutions are to climate risks. The bank has also set a target of reducing emissions at Threadneedle Street and its other physical operations by 63 per cent by 2030 compared to 2016 levels.
Meanwhile, Mark Carney, a former Bank of England governor who is now the UN’s climate envoy, has warned that the pension fund investments held by millions of people could become “worthless” unless the financial sector responds more quickly to the climate crisis.
Mr Powell said the central bank has “narrow but important responsibilities” associated with banking supervision.
But he added: “Without explicit Congressional legislation, it would be inappropriate for us to use our monetary policy or regulatory tools to, say, promote a greener economy or achieve other climate-related goals.”
Other central bankers suggested that central banks had a role to play in the green transition. Yi Gang, the governor of China’s central bank, said: “A central bank can do a lot to support the transition. In particular, since China’s emissions are so high, I feel like we have a very heavy task on our shoulders.”
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