Chair of the Board of Governors of the Federal Reserve System Jerome H. Powell participates in a panel during a Central Bank Symposium at the Grand Hotel in Stockholm, Sweden, January 10, 2023.
Powell’s remarks, delivered at a conference hosted by Sweden’s central bank, follow calls from some Democrats for the Fed to play a more active role in addressing climate change and ensuring the country’s financial system is prepared for climate-related risks.
Federal Reserve Chairman Jerome Powell on Tuesday said the central bank will not get involved in issues like climate change that are beyond its congressionally established mandate, and vowed the institution will not become a “climate policymaker.”
Powell has reinterred that climate change is not a main consideration for the Fed when developing monetary policy, noting that climate-related issues are more for the federal government than for his institution.
“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,” Powell said on Tuesday.
In recent years, the Fed has tiptoed into addressing climate change, including creating of two internal committees focusing on the issue. It’s also joined the Network for Greening the Financial System, a group of global central banks aimed at addressing the systemic risk climate change poses to the financial 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,” Powell said. “We are not, and will not be, a ‘climate policymaker.’”
But Powell on Tuesday said the Fed’s regulatory powers give it a “narrow” role to ensure financial institutions “appropriately manage” climate-related risks. He added the Fed should “not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”
“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. The Fed is set to launch a pilot program this year for six of the country’s largest banks to take part in a climate scenario analysis exercise that would examine the firms’ ability to manage major climate events.
And while the Fed has requested big banks to examine their financial readiness in the event of climate-related disasters, Powell said this is as involved as the institution should be in addressing climate-related issues.