Firstly, I will address three main points. Secondly, the Federal Reserve must consistently demonstrate its independence by utilizing the tools at its disposal to achieve its designated objectives of attaining maximum employment and price stability, while also promoting transparency to enhance comprehension and enable effective oversight by the general public and their elected representatives in Congress. Lastly, it is crucial to recognize that the Federal Reserve’s autonomy in monetary policy is a significant and widely endorsed institutional framework that has proven beneficial to the American population.
The first point lies in the benefits of monetary policy independence for insulating policy decisions from short-term political considerations.
In a well-functioning democracy, it is crucial that government agencies are granted independence to make important public policy decisions, with limited and tightly circumscribed restrictions placed on them only in cases where short-term political considerations require it, and such restrictions should be rare and explicit. These decisions should be made by the elected branches of government in almost all cases.
We are tightly focused on achieving our statutory mandate to provide transparency and useful information. Over the past several decades, we have steadily broadened our efforts to provide meaningful transparency about the consequences and basis of our decisions to the American public. We do not treat this responsibility passively, but rather as an active effort to make decisions in the service of the public. In turn, this transparency supports the democratic legitimacy of the Federal Reserve, enabling effective oversight by Congress.
It is essential that we stick to our mandate, which would require clear statutory goals without undermining the case. However, we should resist the temptation to take on new goals and instead broaden the scope to address other important social issues of the day.
Incorporating the perceived risks associated with climate change into bank supervision is a prudent and consistent decision, aligned with our existing mandates. Today, some analysts are being asked to consider whether political considerations influence our supervisory decisions. However, we can assure the public that this area maintains the independence of other federal banks, just like the degree of independence the Fed has in regulating the banking sector.
It appears that policies aimed at addressing climate change would have significant effects on nations, regions, industries, and companies. Decisions about directly addressing climate change policies should be made by the branches of government elected by the public, as they will reflect the elections expressed through.
At the same time, in my view, the Federal Reserve does have important but limited responsibilities regarding climate-related financial risks. These responsibilities are closely linked to our bank supervision duties, which require banks to understand and manage their material responsibilities appropriately. Additionally, supervisors expect the public to understand the requirements that banks have in managing climate-related financial risks.
We will not be acting as a climate policymaker, and we are not. It would be inappropriate for us to use supervisory tools or monetary policy to promote other climate-based goals or a greener economy, without explicit congressional legislation.
References for the article “Evidence on Comparative Performance: Macroeconomic and Central Bank Independence” by Lawrence H. Summers and Alberto Alesina can be found on pages 151 to 162 of volume 25 (May) of the Journal of Banking, Credit, and Money, published in 1993.
On May 25th, in Tokyo, Japan, at the Bank of Japan, an International Conference was held at the Institute for Monetary and Economic Studies. During the conference, a speech was given by Ben S. Bernanke on the topic of Central Bank Independence, Transparency, and Accountability. This speech was delivered in the year 2010.
On December 2, the Board of Governors of the Federal Reserve System released a press statement titled “Invitation for Public Feedback on Proposed Principles for the Secure and Effective Handling of Climate-Associated Financial Risks for Major Banking Institutions.”
(2008) In the European Journal of Political Economy, volume 24 (December), pages 763-77, Meade E. Ellen and Christopher Crowe published a paper titled “Evolution and Effectiveness: Transparency and Independence Bank Central.”
The conference on Policymakers, Monetary Facing Constraints and Guidelines, Goals was held in June 1994 in North Falmouth, Massachusetts by the Federal Reserve Bank of Boston, spanning from 195-221 pp.
Rogoff, Kenneth (1985). “The Optimal Degree of Commitment to an Intermediate Monetary Target,” Quarterly Journal of Economics, vol. 100 (November), pp. 1169-89.
Tucker, Paul (2018). Unelected Power: The Pursuit for Legitimacy in Central Banking and the Regulatory State. Princeton, N.J.: Princeton University Press.
Return to the text. Bernanke (2010) and Tucker (2018) present overviews of the evolution of central bank autonomy. Including Crowe and Meade (2008), refer to Alesina and Summers (1993) as well as the subsequent research literature of the past 30 years on the issue of empirical proof. Consult Rogoff (1985) as well as the discussion below on the distinction between goal autonomy and instrument autonomy, on the advantages of central bank autonomy, including by Kenneth Rogoff, on the advantages of central bank autonomy, has been supported by theoretical and empirical research contributions in pursuit of legislated objectives of economic and price stability, endorsement of arrangements in which central banks made monetary policy decisions in the past few decades.
“Our situation is distinct from that of the European Central Bank, whose autonomy is listed in Article 130 of the Treaty on the Functioning of the European Union, which can be accessed from the European Union at https://lexparency.Org/eu/TFEU/ART_130. Return to the original text.”
“3. We strive to continue improving our transparency. Over my five-year tenure as Chair, I have pursued this objective by expanding post-meeting press conferences to include all FOMC meetings and initiating ongoing personal discussions with lawmakers. This ongoing dialogue goes far beyond the standard testimony, mandated by law, in which I provide updates to the congressional committees responsible for overseeing monetary policy. Return to the original text.”
In 1994, Fischer and Debelle argued that the goal of independence in the analysis of types should focus more on the distinction between independence as a policy instrument or operation, rather than just independence itself. This reflects the fact that the existence of the Federal Reserve’s dual mandate is in line with the mandate of independence. The dual mandate became part of the law in 1977, but it has been independent since the inception of the Federal Reserve in 1914. However, the independence of the Federal Reserve has only become part of its dual mandate in law.
Like our monetary policy, the area of independence in this comes with a high level of transparency about our procedures and policies.
6. For more information, refer to the Board of Governors (2022). Return to the text.
.Gov.Uk/ukpga/1998/11/contents, and the Treaty on the Functioning of the European Union, Article 127(1), available from the European Union at https://lexparency.Org/eu/TFEU/ART_127. The policies related to the economy of the U.K. Government and the European Union, respectively; see the Bank of England Act 1998, part II(11), available from the U.K. National Archives at https://www.Legislation.Gov.Uk/ukpga/1998/11/contents, and the Treaty on the Functioning of the European Union, Article 127(1), available from the European Union at https://lexparency.Org/eu/TFEU/ART_127.