US Senator calls for climate-focused Fed Chair

US Senator Sheldon Whitehouse (D – R.I.) has called for a climate-focused Chair of the Federal Reserve as speculation grows over whether President Joe Biden will re-nominate current Chair Jerome Powell for another four-year term. “Whoever chairs the Fed needs to understand the systemic climate threat, recognize how the fossil fuel industry’s lies created and sustained the threat, and use the Fed’s tools to head off the climate-driven financial crisis we know is coming,” the Senator said in a statement to GreenCentralBanking.com. “Any Fed Chair must meet that bar.”

Whitehouse’s comments come amid concern about Powell’s lack of climate leadership and the Fed’s late and weak response to the climate emergency. Powell, a Trump-appointee whose term ends next February, has faced strong criticism over his lack of climate awareness. Biden is expected to make a decision about whether or not to re-nominate Powell in the coming weeks.

Responding to a New York Times article positioning Powell as a “middle ground” candidate on climate, Senator Whitehouse was direct: “If Powell still wants to find “middle ground” between the warnings of science and the lies of the fossil fuel industry, he has to go,” he said in a response on Twitter. Asked to elaborate by GreenCentralBanking.com, Whitehouse pointed to climate change’s threat to the US financial system. “It’s the Federal Reserve’s duty to safeguard the stability of the financial system, and climate change is a glaring threat to the stability of that system, ” he said. “There is no responsible ‘middle ground’ between climate safety and fossil fuel lies.”

The Fed first recognised climate change as a threat to US financial stability only last year and the central bank was late to join the international Network for Greening the Financial System. Since then it has set up two committees to study climate change but has confined its climate activities to researching and identifying related risks. Twenty seven members of the US Congress wrote to Powell in April criticising the Fed’s failure to prepare for climate risks, and last week five progressive representatives directly called for Powell’s removal because of his poor climate record.

The Fed Chair is one of ten voting members of the Financial Stability Oversight Council (FSOC), thus their impact on climate change will go beyond the remit of the Federal Reserve. In accordance with a May Executive Order from President Biden, the FSOC  is now tasked with outlining “a whole-of-government process to assess climate risk to the U.S. financial system and federal government.” Under former Fed Chair Janet Yellen the FSOC is now developing recommendations on reducing climate-related risks to US financial stability and is due to report by the end of November.

Powell’s position on the report will be another test on whether he will take a more active stance or drag his feet on the calls from more progressive voices on the FSOC. Powell’s track record on financial regulation in general has been criticized for being light footed and commentators have highlighted his lack of climate leadership on addressing climate risk in comparison to peers such as the European Central Bank’s Christine Lagarde and the Bank of England’s Andrew Bailey.

“Climate change is really an issue that is assigned to lots of other government agencies, not so much the Fed,” Powell told a 2019 Senate hearing. Senator Whitehouse’s seat on the Senate Finance Committee ensures him a voice in the confirmation process of any candidate that Biden nominates for Fed Chair. Should Powell be re-nominated, the Senator is likely to ask if he has reevaluated his position since then.