Fed ‘will not be a climate policymaker’, says chair

The Federal Reserve has no mandate for using monetary policy tools to respond to the climate crisis, the US central bank chair has said. Instead, the government should use its powers to build a green economy.

Jerome Powell declared in a speech on Tuesday that “without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals”. He added that “we are not, and will not be, a ‘climate policymaker.’”

Powell was speaking at the International Symposium on Central Bank Independence in Stockholm, on a panel discussing central bank independence and mandates.

Powell explained that “decisions about policies to directly address climate change should be made by the elected branches of government”. He continued: “It would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals.”

Climate advocates in the US were dismayed by Powell’s statements. David Arkush, a climate and financial regulation advocate at the thinktank Public Citizen, tweeted that “Powell [is] going out of his way to show he doesn’t understand that the climate crisis is having major impacts on inflation and employment”.

Powell’s statements seem to contradict those of the Fed’s vice chair, Lael Brainard. In a speech late last year, Brainard explained that “the potential for more frequent and severe climate events, as we are already seeing, and for frictions in the energy transition could lead to greater volatility of supply”.

Powell did note that “the Fed does have narrow, but important, responsibilities regarding climate-related financial risks” as related to bank supervision. “The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change”.

Indeed, Powell’s comments come soon after the Fed proposed draft climate principles for banks under its supervision. The central bank and its fellow regulators, the Comptroller of the Currency and Federal Deposit Insurance Corporation, are expected to finalise the guidance this quarter. When complete, these principles are likely to require banks with over $100bn in consolidated assets to, among other things, “have adequate understanding and knowledge to assess the potential impact of climate-related risks on the financial institution and to address and oversee these risks within the institution’s strategy and risk appetite.”

The Federal Reserve is also in the process of developing a climate scenario analysis pilot programme for some of the largest banks. Unlike stress tests, the results of this pilot programme will not affect banks’ capital requirements.

The Federal Reserve ranks 16 on Green Central Banking’s scorecard, with a score of 16 out of 130, largely due to the fact that it has not addressed climate in its monetary policy. In his speech, Powell noted that “the Bank of England and the European Central Bank both have … a secondary mandate to support the economic policies of the UK government and the European Union, respectively”, while the Federal Reserve does not.