Powell says climate change is not a main factor in Fed policy decisions

Powell says climate change is not a main factor in Fed policy decisions

Federal Reserve Chairman Jerome Powell

Kevin Lamarque | Reuters

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

Speaking to a panel of his international colleagues, the head of the US central bank said tackling global warming issues was more for the government than his institution.

“Today, climate change is not something that we directly consider in defining monetary policy,” said Powell at the “Green Swan” conference presented by the Bank for International Settlements. “We are quite actively exploring the exact implications of the climate for our supervisory, regulatory and financial stability responsibilities.”

In recent months, the Fed has taken a more active role in climate change, with the creation of two internal committees to explore the issue and by joining the Global Network for Greening the Financial System.

However, Powell made it clear that the institution’s role in this matter is limited to overseeing banks and the rest of the financial system, and not setting public policy otherwise. He added that “there was a lot to like” about stress testing banks for climate-related issues, but did not commit to a specific program.

“At the Fed, we see our role as an important role closely linked to our current mandate,” he said. “Our mandate has not changed. We have not been given a role in shaping overall policy. We do not have a secondary mandate to support the government’s economic policies.”

The Fed has been the subject of criticism from some, especially congressional republicans, for having exceeded its dual mandate of full employment and price stability.

But Powell said that “we see climate-related financial risk” as falling under “our current mandate for banking supervision and financial stability.”

His comments in Friday’s session contrasted with those of some of his fellow central bank chiefs who have more extensive mandates.

European Central Bank President Christine Lagarde said taking a position on the climate was at the heart of her institution’s mission.

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

Lagarde suggested that the ECB could factor climate change into its corporate bond purchases. In contrast, the Fed only bought corporate debt during the Covid-19 pandemic and announced this week that it will begin to unwind the modest portfolio it accumulated during the program.

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