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Powell: Fed is guided by law and economics, not politics.

Responding to a variety of questions on the impact of the Trump Administration on the U.S. Central Bank, Federal Reserve Chairman Jerome Powell said on Wednesday that politics was not the reason for the Fed's departure from a global group focused on climate change, and it would not influence its interest rate decisions.

Powell said that while the Fed was working to align their workforce policies with the executive order of President Donald Trump banning diversity and inclusion promotion, any changes would only be minor, and they will be in line with the applicable laws. Powell also stated that he is still convinced that diversity is the hallmark of successful organisations.

The Fed is very careful to protect its independence in monetary policy, as it believes that any political influence on the central bank's interest rate setting will undermine its ability control inflation.

Trump, who criticized Powell and Fed frequently during his first term is again testing these limits. He said last week that he will "demand" immediate rate cuts.

Powell, when asked Wednesday about the President's remarks, said: "It is not appropriate to comment."

He added that "the public can be assured that we will do our work in the same way we have always done it, using our tools and focusing on our goals, while keeping our heads down."

He said that with inflation still exceeding its 2% target, the Fed will wait to see if there is any further progress in inflation or a weakening of the labor market before cutting interest rates. He declined to make any predictions about how Trump's trade, immigration, tax and regulation policies would impact the economy. He said that the committee was waiting to see which policies were implemented.

DODD-FRANK: EXECUTIVE ORDINANCE

Trump launched a new attack shortly after the press conference. Trump posted on Truth Social that if the Fed spent less time on DEI and gender ideology, "green" energy, and fake global warming, inflation would not have been an issue. He promised to fix it with his policies.

Around the time of Trump’s Jan. 20, 2017 inauguration, and his executive order, which directed government agencies to stop efforts to promote DEI, or diversity, equity, and inclusion (DEI), The Fed and its 12 regional banks removed sections of their websites devoted to racial diversity and gender diversity.

Changes include the removal of data about the number of women and minority economists at the Fed, and standards for diversity in the workforce.

These standards were developed to meet the requirements of the Dodd-Frank Financial Reforms, passed by Congress in 2010. Maxine Waters (Democrat) has argued that a Dodd-Frank executive order can't undo the legal requirement under Dodd-Frank to promote diversity and inclusivity.

Powell said that "we're reviewing orders and associated details" for the new diversity policy. "As we have done in previous administrations, our goal is to align our policies as necessary with executive orders, consistent with the applicable law."

He didn't mention any possible policy changes in recruitment or hiring at Central Bank.

FED LEAVES CLIMATE RISE GROUP

Three days before Trump’s inauguration, Fed withdrew its membership from a global organization of central banks devoted to exploring methods to reduce climate risks in the financial sector.

In 2020, after the election of Democrat Joe Biden as president and the end of Trump's term, the Fed joined the Network of Central Banks and Supervisors to Green the Financial System.

Powell explained that the decision was not driven by politics. "I am aware of how it may appear, but it wasn't," Powell said. Powell said that he decided to discuss the possibility of leaving "some months ago," because the group's mandate had expanded and it "wasn't a good match for the Fed anymore."

Some analysts still see the recent Fed actions as a way to undermine Fed independence.

Michael Barr, Fed Vice-Chair for Supervision, announced earlier in January that he would step down from his regulatory oversight position by the end next month. This will allow Trump to replace him with someone who has a more lenient approach, in line with Trump’s preferences and the Republican majority of Congress.

Derek Tang, a LH Meyer analyst, wrote that "Republican pressure on the Fed would be felt in all areas of its activity," even though Powell's strategy seemed to be to maintain monetary policy autonomy even at the expense of giving up autonomy in other fields. (Reporting and editing by Ann Saphir; reporting by Michael S. Derby, Howard Schneider, and Dan Burns)

(source: Reuters)