Barring congressional action, it would be inappropriate for the Federal Reserve to use monetary policy or supervisory tools to promote a greener economy or achieve other climate-based goals, Fed Chairman Jerome Powell said today. Speaking at a central bank symposium in Sweden, Powell said the Fed’s independence in setting monetary policy “has served the American public well.” However, that independence means the agency should “stick to our knitting” and not wander off to pursue perceived social benefits that are not tightly linked to its statutory goals and authorities, he said. The Fed has “narrow, but important, responsibilities” regarding climate-related financial risks, but it is up to elected lawmakers to set direction on climate policy.
“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, later adding, “We are not, and will not be, a climate policymaker.”
Fed Governor Michelle Bowman made a similar argument today during a speech to the Florida Bankers Association, saying the agency views its role on climate “as a narrow focus on supervisory responsibilities and limited to our role in promoting a safe, sound and stable financial system.” She also noted that the Fed’s recent climate guidance only applies to banks with more than $100 billion in assets.
“While this climate supervision effort is a new area of focus, it has been a longstanding supervisory requirement that banks manage their risks related to extreme weather events and other natural disasters that could disrupt operations or impact business lines,” Bowman said.
In a letter last year that echoed some of Powell’s and Bowman’s comments, ABA and 51 state bankers associations urged financial regulators not to use financial institutions as proxies to achieve their policy goals on climate change, social issues or other concerns. “Banks must be able to make legal business decisions that are appropriate for their customers and communities as market and consumer preferences evolve,” the groups said.