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Home / Business / Powell the Fed says central banks can not get independence

Powell the Fed says central banks can not get independence



An erosion of public trust in institutions could jeopardize central bank independence and require more transparency and accountability from policymakers after the 2008 financial crisis, said the Fed chairman

Jerome Powell

said Friday

Mr. Powell said that low levels of trust in government institutions created a "challenging moment" for central banking. "In this environment, central banks can not take our level of independence for granted," he said in a speech prepared for a speech. Powell, who became head of the Fed in February, was scheduled to speak in Stockholm on Friday at a conference marking the 350th anniversary of the Swedish central bank Riksbank. In his prepared remarks, he did not address the US economy or the short-term interest rate pathway, focusing instead on broader topics of financial stability.

Central bankers have long argued for independence from political pressure. They say that it allows them to make unpopular decisions in the long-term interest of the economy, such as raising interest rates to curb inflation, even if it means a slowdown in growth, as the then Fed chairman said

Paul Volcker

did in the early 1

980s

Mr. Powell said that while central bank independence has often been closely linked to monetary policy, research suggests that granting central banks' independence "on issues of regulation and financial stability has also produced better results. Powell's speech argued for more regulatory disclosure on how to refine financial regulation innovations that followed the 2008 crisis, including bank stress tests and lazy companies.

Late last year, the Fed began taking steps to disclose more on the big-bank stress tests in response to criticism from bankers who said the exams are hard to understand.

Mr. Powell said on Friday that the stress tests represent an important "step forward" in transparency that can restore and maintain public confidence in the financial system. He said further steps to disclose more information in these reviews would bolster bank confidence in your judgments.

While the Federal Reserve was mandated by Congress to fulfill two mandates to maintain stable prices and maximize employment, Powell said the responsibility for a stable financial system was "highly complementary" to these mandates ] "There can be no macroeconomic stability without financial stability," he said.

Write to Nick Timiraos at nick.timiraos@wsj.com


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