Federal Reserve board member Christoper Waller has said that climate change risks are insufficiently unique to warrant special treatment. Waller’s comments diverge sharply not only from his counterparts in central banking but also from the Fed’s own 2021 financial stability report which acknowledged climate change as a “significant financial stability risk”.
Referring to how the Fed approaches risks to financial stability, Waller stressed that the central bank “should focus on more near-term and material risks”. Short-term risks, like the run on Silicon Valley Bank, should therefore take precedence over medium to long-term policies which focus on the physical and transition risks of climate change.
His comments echoed those of Jerome Powell, chair of the Fed, who has maintained it would be inappropriate to use monetary policy in the context of climate change. Waller downplayed the significance of climate-change-related events on financial stability, adding that “the risks must be material enough to create losses large enough to affect the real economy”. The US, which ranked 16th in last year’s Green Central Banking Scorecard, suffered extreme weather events incurring damages of US$175.2bn in 2022, according to the National Centers for Environmental Information.
The Fed has been the focus of Democrats who recently re-introduced the Fossil Free Finance Act that would require the central bank to institute policies restricting finance for fossil fuel and deforestation activities. Nevertheless, despite an increasing number of central banks adopting policies focused on climate-related matters, the likelihood of the bill becoming law is highly improbable.
These latest comments from a senior Fed representative are at odds with many from the central banking community; Banque de France’s governor, François Villeroy de Galhau, recently said that central banks have a “core duty” to fight climate change. Similarly, the European Central Bank’s Frank Elderson has been increasingly vocal on the topic, asserting that climate considerations “should not be seen as controversial”.
This page was last updated May 16, 2023
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