WASHINGTON — Federal Reserve Board Chairman Jerome Powell on Friday gave a shout-out both to central banks’ independence but also their need to be transparent.

Speaking at an event hosted by the Swedish central bank in Stockholm, Powell said the Fed’s independence is important to both its monetary policy and regulatory missions.

“Within our narrow mandates, to safeguard against political interference, central banks are afforded instrument independence — that is, we are given considerable freedom to choose the means to achieve legislatively assigned goals,” Powell said at the event, which was sponsored by the Riksbank and the Riksdag.

Fed Chairman Jerome Powell
Federal Reserve Board Chairman Jerome Powell delivers a speech at a conference to celebrate the 350th anniversary of the Riksbank in Stockholm, Sweden. Bloomberg News


“While the focus is often on monetary policy independence, research suggests that a degree of independence in regulatory and financial stability matters improves the stability of the banking system and leads to better outcomes,” he added.

But with trust in public institutions “at historic lows,” Powell said, “the Fed and other central banks cannot take our measure of independence for granted.”

Powell said the crisis showed the need for public awareness and understanding about what central banks do, and development of post-2008 regulatory tools such as stress tests and resolution planning “have placed special demands on transparency and accountability, and we have worked hard to explain them to the public.”

In certain cases, such as the first round of U.S. bank stress tests carried out during the crisis, Powell said, “the case for enhanced transparency is not just about being accountable; it is also about providing credible information that can help restore and sustain public confidence in the financial system.”

Before the crisis, Powell said, bank supervision did not focus enough on risks to the system as a whole, and new policies to fix that deficiency “have benefited from public solicitation of feedback and in many cases from consideration in open meetings of the Board of Governors.”

“Transparency and incorporation of public feedback in these areas have produced more effective supervision and regulation. For example, transparent and clearly communicated policies make it easier for regulated entities to know what is expected of them and how best to comply,” he said. “Of course, as with any large-scale, complex undertaking, the standards adopted over the past decade can undoubtedly be improved. At the Fed, we are committed to transparency as we assess the efficacy and efficiency of post-crisis reforms.”

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