The Federal Reserve has only a “narrow” role regarding climate change risks – to make sure banks understand and manage the financial risks associated with warming temperatures, the central bank’s chairman Jerome Powell said Tuesday.
“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, in a panel discussion sponsored by the Swedish central bank in Stockholm.
“We are not, and will not be, a ‘climate policymaker,” Powell added.
The Fed chairman did not discuss the outlook for the U.S. economy or monetary policy in his prepared remarks.
The Fed’s work on climate has already been criticized by House Republicans, who will likely use their new control of the chamber to focus on the issue.
For instance, four senior GOP members of the House Financial Services Committee sent Powell a letter last year saying “the role of the Federal Reserve is not to dictate consumer demand, nor is it to determine which industries are worthy of capital and which should be starved of financing.”
In his prepared remarks, Powell said the Fed has to resist the temptation of broadening its scope to address “other important social issues of the day,” so that it can remain independent to make interest-rate decisions without regard to short-term political considerations.
“We should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly lined to our statutory goals and authorities,” he said.
Powell discussed the topic of central bank independence, which he said has served the American public well. It give the Fed space to make unpopular decisions, he said.
“Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” Powell said.
Congress has set the goals of maximum employment and price stability for the Fed and officials have independence to use its tools as needed to achieve these mandates, Powell added.
“Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence,” he added.
Stocks
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were set to open lower on Tuesday, while the yield on the 10-year Treasury note
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inched up to 3.58%.
