Jay Powell's Stockholm speech lays it out with Gettysburg address clarity and brevity. Relative to usual central-bankerese it's soaring rhetoric too.
...Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections.
... without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a "climate policymaker."
So much for "all of government" approach announced by the administration. Would that the SEC and other regulators would listen.
Powell carefully and correctly links this path to the US institutional structure. The Fed has independence, in return for sticking to its mandate.
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.
Footnote 7 is important.
While U.S. monetary policy has the dual mandate of maximum employment and price stability, some other central banks have somewhat more expansive mandates. The Bank of England and the European Central Bank both have a primary mandate to maintain price stability but a secondary mandate to support the economic policies of the U.K. government and the European Union, respectively..
My emphasis. Now, not even in the EU and UK do central banks have the freedom to create their own climate policies in advance of governments. And governments come and go and change their minds. Now that Europe is full-bore trying to invest in natural gas as fast as possible, and even bringing back coal, it will be interesting to see if ECB and BoE regard their roles as supporting the new economic policies of their governments, or whether they will decide to act independently to pursue an anti-carbon policy different from those of their governments.
OK, he waffles a bit:
Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates....
These responsibilities are tightly linked to our responsibilities for bank supervision..
.. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.
But read closely. "perceived." "material." I would have said "it's perfectly obvious that 'climate financial risk' is BS." But I'm not Fed chair. "Perceived" is darn close! And advocates will have to show that climate is "material" to banks, not just how important climate policy is, and how the Fed must act because legislature does not.
As Lincoln cast the civil war in the context of the Declaration of Independence, so Powell casts the climate policy in the context of Fed independence. Only by hewing tightly to the mandate can the Fed preserve the independence it will soon need:
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 Fed's anti inflationary tool is precisely to cool the economy. Great political displeasure is heading the Fed's way, and only by eschewing the temptation to be the great "policy-maker" that solves all problems can the Fed do its central job.
It is essential that we stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day. Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.
I wish I could ever write something with such clarity and brevity.
