Credit…Pool photo by Stefani Reynolds
Jerome H. Powell, the chair of the Federal Reserve, said the central bank pays attention to inequality because it can restrain the economy’s potential when people do not have opportunities to succeed.
“We all want an economy where everyone has the opportunity to contribute to and benefit from prosperity,” Mr. Powell said during an appearance at the Economic Club of Washington, D.C., noting that the Fed has recently defined its full employment goal as “broad and inclusive” in as it tries to incorporate economic divides into its policy thinking.
“We call them out, we talk about them,” he said of the inequalities.
Mr. Powell’s comments come at a time when the Fed has faced increasing criticism from Republicans for its attention to racial equity and climate change, issues central bank officials often say have economic and financial stability implications but which some lawmakers paint as too political for the central bank. The Fed is independent of the White House and is supposed to be nonpolitical so that it can make prudent long-term economic decisions.
Mr. Powell underlined that the Fed isn’t trying to do the job of Congress.
“We can’t be the primary policy organization that treats either climate change or inequality — we see it through the lens of our existing mandates,” Mr. Powell said Wednesday. “Those are very much issues for elected representatives.”
Separately, he said that while his institution works with the Biden administration on economic issues, he has not met with the president.
“Meetings with presidents and Fed chairs are very, very, very infrequent,” he said.
Mr. Powell was appointed to the Fed by former President Barack Obama and was elevated to chair of the central bank by Donald J. Trump. His term expires early next year, so Fed watchers have been attentive to his interactions with the Biden administration as they try to game out whether Mr. Powell wants — or will be tapped for — another term. There has been little signal either way so far.
For now, his public appearances have remained focused on the path ahead for monetary policy. The Fed has kept its policy interest rate at rock bottom, and it is buying $120 billion in bonds each month to keep many kinds of borrowing cheap, policies meant to help the economy heal from pandemic damage.
Mr. Powell and his colleagues are watching for progress toward their 2 percent average inflation goal and full employment before changing those policies.
Some economists have fretted that inflation might pick up as the Fed takes a patient stance and as the government spends heavily on pandemic relief. But the Fed has been more concerned with lifting price gains, which have been weak for a quarter century.
“You’ve seen central banks around the world really struggle to reach a 2 percent goal,” Mr. Powell said Wednesday. “You can get into a cycle, if you will, that’s not a productive one.”
When it does come time to scale back support for the economy, the central bank will probably slow its bond-buying “well before” it lifts its policy interest rate, Mr. Powell said on Wednesday.
He also suggested that as bond-buying policies draw to a close, they will likely follow a similar path to the one the Fed employed after the financial crisis. Officials will first slow bond investments, then stop them, and then eventually will allow bonds to mature without reinvestment, shrinking the balance sheet passively.
“I don’t think we now would ever actually sell bonds into the marketplace,” he said. He made it clear that the policy-setting committee hasn’t actually made those decisions yet.