Federal Reserve Chairman Jerome Powell said Tuesday that it would be “inappropriate” for the central bank to plunge itself into the fight against climate change.
In brief Tuesday remarks during a summit in Stockholm, Powell said while the Fed must make sure banks are prepared for climate-related financial risks, it must not take measures to steer money toward green energy or away from the fossil fuel sector.
“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. We are not, and will not be, a ‘climate policymaker,’” Powell said Tuesday.
Powell argued that going beyond the Fed’s basic mandate of stable prices and maximum employment would “undermine the case” for the bank’s independence from Congress and the White House, which allows it to raise and cut interest rates without approval from elected officials.
“It is essential that we stick to our statutory goals and authorities, and that we resist the temptation to broaden our scope to address other important social issues of the day,” Powell said.
Powell, a Republican who was renominated last year by President Biden, has sought to strike a careful balance on the Fed’s role in the climate change fight amid growing pressure on central banks to lead the charge.
The Fed under Powell has ramped its efforts to understand the ways climate change and the global shift to cleaner energy could rattle the financial sector and the major banks it supervises. The Fed is also expected to launch a pilot exercise this year meant to help banks understand how their businesses would be affected by several climate-related shocks.
While Democrats have broadly praised the Fed’s initial efforts, many progressive lawmakers and climate activists say they fall well short of the aggressive action necessary to stop climate change. The Fed has faced pressure from the left to penalize banks who fund fossil fuel-related projects and incentivize investment in green energy, while Republican lawmakers have blasted the Fed for even considering climate change as a factor in bank regulation.
Powell reiterated Tuesday that the Fed “does have narrow but important responsibilities regarding climate-related financial risks” related to its legal requirement to supervise major banks.
“The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change,” Powell said.
But the Fed chief said it was up to Congress and the White House, not the central bank, to craft policies to take on the underlying problem.
“Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations,” Powell said.
“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections.”