By Ann Saphir and Howard Schneider

(Reuters) – Fielding a range of questions about the imprint of the Trump administration on the U.S. 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.

While Powell noted the Fed is working to align its workforce policies with President Donald Trump’s executive order banning the promotion of diversity and inclusion, he indicated that changes could be limited, emphasizing that they would be “consistent with applicable law” and expressing his belief that diversity is crucial for successful organizations.

The Fed carefully protects its monetary policy independence, arguing that political influence over interest-rate decisions compromises its ability to control inflation. Trump, who has frequently criticized Powell and the Fed, stated last week that he will “demand” immediate interest rate cuts.

In response to a question, Powell stated, “It’s not appropriate” to comment on the president’s statements, adding, “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.”

With inflation still above the Fed’s 2% target, Powell mentioned the Fed would await additional signs of progress on inflation or labor market weakness before cutting interest rates further. He refrained from speculating about how Trump’s policies on trade, immigration, taxes, and regulation might impact the economy, stating, “The committee is very much in the mode of waiting to see what policies are enacted.”

EXECUTIVE ORDER VS DODD-FRANK

Shortly after the news conference, Trump launched a fresh wave of criticism, saying, “If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, Inflation would never have been a problem,” and pledged to address inflation with his policies.

Around the time of Trump’s inauguration, the Fed and its 12 regional banks removed sections from their websites dedicated to racial and gender diversity, following Trump’s executive order directing government agencies to halt efforts promoting diversity, equity, and inclusion (DEI). This included deleting data on the numbers of minority and female economists at the Fed and the standards for workforce diversity established under the 2010 Dodd-Frank financial reforms. Representative Maxine Waters, a Democrat, has argued that an executive order cannot negate legal requirements under Dodd-Frank promoting diversity and inclusion.

Powell stated, “We’re reviewing the orders and the associated details” of the new diversity policies, and added, “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 comment on potential policy changes regarding recruitment or hiring at the Fed.

FED LEAVES CLIMATE RISK GROUP

Three days before Trump’s inauguration, the Fed withdrew from a global central banking organization focused on reducing 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 end of Trump’s first term following Joe Biden’s election.

Powell acknowledged that the decision might appear politically motivated but asserted it was not influenced by politics. He stated that he had decided on the withdrawal “some months ago” because the group’s mandate had expanded to the point that it was “not a good fit for the Fed” anymore.

However, analysts interpret the Fed’s recent actions as eroding its independence. Recently, Fed Vice Chair for Supervision Michael Barr announced he would resign from his regulatory oversight role, potentially allowing Trump to appoint someone more in line with his preferences and those of the Republican majority in Congress. Derek Tang of LH Meyer commented that “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 at the cost of surrendering autonomy in other areas.”