Climate change not a main factor in Fed decisions

Federal Reserve Chairman Jerome Powell

Kevin Lamarque | Reuters

Federal Reserve Chairman Jerome Powell said Friday that climate change is not a primary consideration for the central bank when formulating monetary policy.

Speaking to a panel of his global colleagues, the US Federal Reserve chief said it was more for the government than for his institution to deal with issues related to global warming.

“Today, climate change is not something that we take directly into account when setting monetary policy,” Powell said at the Bank for International Settlements’ Green Swan conference. “We are very actively investigating what effects the climate has on our oversight, regulatory and financial stability responsibilities.”

In recent months, the Fed has taken a more active role on climate change by creating two internal committees to deal with the issue and joining the global network to green the financial system.

However, Powell made it clear that the institution’s role in this matter is limited to overseeing the banks and the rest of the financial system, rather than establishing public order. He added that it was “a lot to like” to test banks for climate-related issues, but he did not commit to any particular program.

“We at the Fed see our role as an important one that is closely tied to our existing mandate,” he said. “Our mandate has not changed. We have not been assigned a role in setting overall policy. We have no secondary mandate to support government economic policies.”

The Fed has been criticized from some quarters, particularly from the Republicans in Congress, for exceeding its dual mandate of full employment and price stability.

Powell said, however, “we see climate-related financial risk” as “our existing mandate for banking supervision and financial stability”.

His comments at Friday’s meeting contrasted with some of his fellow central bank governors who have broader mandates.

European Central Bank President Christine Lagarde said it was central to the mission of her institution to comment on the climate.

“Our planet is on fire, and we central bankers could look at our mandate and pretend that others are acting and that we should just be followers. I don’t think so, ”she said.

Lagarde suggested that the ECB could consider climate change in its corporate bond purchases. In contrast, the Fed only bought corporate bonds during the Covid-19 pandemic and this week announced it would begin liquidating the modest portfolio it had amassed during the program.

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