Fed guided by economic goals and the law, not politics, says Powell

Fielding a range of questions about the imprint of the Trump administration on the US central bank, Federal Reserve Chair Jerome Powell on Wednesday said that politics had not prompted the Fed's decision to leave a global climate-focused group, and would not affect its interest-rate calls.

And while Powell did say that the Fed is working to align its workforce policies with President Donald Trump's executive order banning the promotion of diversity and inclusion, he signaled that changes could be limited, saying that they would be "consistent with applicable law" and that he remains convinced that diversity is a hallmark of successful organizations.

The Fed guards its monetary policy independence carefully, arguing that political influence over central bank interest-rate setting undermines its ability to control inflation.

Trump, who frequently criticized Powell and the Fed during his first term, again is testing those limits, saying last week that he'll "demand" immediate interest-rate cuts.

"It's not appropriate" to comment on what the president says, Powell said Wednesday when asked.

But, he added, "the public should be confident that we will continue to do our work as we always have focusing on using our tools to achieve our goals and really keeping our heads down."

With inflation still above its 2% goal, he said, the Fed would wait for signs of further progress on inflation, or of labor market weakness, before it would cut interest rates further. He also declined to speculate on how Trump's policies on trade, immigration, taxes and regulation would affect the economy. "The committee is very much in the mode of waiting to see what policies are enacted," he said.

EXECUTIVE ORDER VS DODD-FRANK

Shortly after the news conference, Trump let loose a new round of criticism. "If the Fed had spent less time on DEI, gender ideology, 'green' energy, and fake climate change, Inflation would never have been a problem," Trump wrote on Truth Social, promising he would fix inflation with his policies.

The Fed and all 12 of its regional banks scrubbed their websites of sections devoted to racial and gender diversity around the time of Trump's Jan. 20 inauguration and his executive order directing government agencies to end efforts to promote diversity, equity and inclusion, or DEI.

The changes included the removal of data on the number of minority and women economists at the Fed and standards for workforce diversity.

Those standards were developed in line with requirements under the 2010 Dodd-Frank financial reforms passed by Congress. Representative Maxine Waters, a Democrat, has argued that an executive order cannot undo what under Dodd-Frank is a legal requirement to promote diversity and inclusion.

"We're reviewing the orders and the associated details" of the new diversity policies, Powell said, and "as has been our practice over many administrations, we are working to align our policies with executive orders as appropriate and consistent with applicable law."

He did not address any potential policy changes to recruitment or hiring at the central bank.

FED LEAVES CLIMATE RISK GROUP

Three days before Trump's inauguration, the Fed withdrew from a global central banking organization devoted to exploring ways to reduce climate risk in the financial system.

The Fed joined the Network of Central Banks and Supervisors for Greening the Financial System in 2020, at the tail end of Trump's first term following Democrat Joe Biden's election to the presidency.

"I’m aware of how it can look but it was really not driven by politics," Powell said of the decision. He said he had determined to bring up the idea of leaving the group "some months ago" because its mandate has expanded so that it was "not a good fit for the Fed" anymore.

Still, some analysts continue to see in the central bank's recent actions some chipping away at Fed independence.

Earlier in January, Fed Vice Chair for Supervision Michael Barr said he would resign from his regulatory oversight role by the end of next month, allowing Trump to install someone with a lighter-touch approach more in line with Trump's preferences and those of the Republican majority in Congress.

"Republican political pressure on the Fed will be felt across all angles of the Fed’s activity, even if Powell’s strategy seems to be to preserve monetary policy independence even at the cost of surrendering autonomy in other areas," LH Meyer's Derek Tang wrote last week.