US Federal Reserve chair Jerome Powell said it would be inappropriate for the Fed to use its existing mandates to step in on environmental issues.
Speaking at a Riksbank conference dedicated to central bank independence, Powell said “taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence”.
Powell emphasised he believes the Fed has “narrow but important” responsibilities regarding climate-related financial risks but these responsibilities are tightly linked to the reserve banks’ responsibilities for bank supervision.
“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,” the Fed chair said.
“We should ‘stick to our knitting'”, Powell said, and not pursue “perceived social benefits” that are not tightly linked to the Fed’s statutory goals and authorities.
Without explicit congressional legislation, Powell claimed it would be inappropriate to use the 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'.”
A partisan issue
Climate change is one of the main issues in which Americans’ views are divided largely along party lines.
According to a July 2022 Pew Research Center survey, the majority (82 percent) of Republicans say Biden’s climate policies are taking the country in the wrong direction, while 79 percent of Democrats believe Biden is moving the country in the right direction on climate policy.
As soon as Joe Biden took office two years ago, he instantly placed tackling climate-related issues on the top of his agenda.
Since then, practically all federal financial regulators have weighed in on the topic or shown interest in enhancing their understanding and potentially the oversight of climate-related financial risks.
The most controversial proposal was laid on the table by the Securities and Exchange Commission (SEC), which set out broad rules for climate-related disclosures.
If finalised, the rule would require public companies to disclose how climate change risks affect their business and provide more information on their operations’ impact on the environment and carbon emissions.
Additionally, the Office of the Comptroller of the Currency (OCC) set out principles for climate risk management, and the Federal Deposit Insurance Corporation (FDIC) and the Commodity Futures Trading Commission (CFTC) asked for public input on climate-related risks. Even the Treasury’s Financial Crimes Enforcement Network (FinCEN) asked money transmitters to report suspected environmental crimes.
Meanwhile, in recent years, the Fed has been working on developing scenario analysis and, in September, it launched a pilot with the six largest US banks to measure and manage climate-related financial risks.
The Fed also published a climate guidance proposal for banks over $100bn in assets.
Nonetheless, with climate change being one of the most partisan issues and Republicans taking over the House, it is possible that House Republicans will enhance the pressure on regulators to stay within the boundaries of their strict mandates.
Patrick McHenry (R-NC), the newly-elected chair of the House Financial Service Committee, specifically criticised the SEC’s ongoing rulemaking regarding climate-related disclosures.
When taking over the committee leadership, McHenry said he will focus on conducting “appropriate and aggressive” oversight of the Biden administration.
Last February, four Republican members of the House Financial Services Committee also pressured Powell to stay within the Fed’s narrow congressional mandate and asked the Fed to resist the push to advance environmental policies.
Powell was first elected as the chair of the Fed during the Trump administration and was re-elected to head the regulator last year.