Powell: The Fed has only a narrow role to play on climate change
WASHINGTON (AP) – The Federal Reserve has only a limited role to play in fighting climate change, Chairman Jerome Powell said Tuesday, a position that puts him at odds with environmentalists who have pushed central banks around the world to take steps to limit lending to energy company.
“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 during a panel discussion held in Stockholm on the topic of bank independence.
“We are not, and will not be, a ‘climate politician.'”
In his remarks, Powell kept to the broader topic of central bank independence and did not comment on the Fed’s interest rate policy.
Climate activists have pressured central banks, including the Fedto use its supervisory powers over commercial banks to push for greater consideration of environmental risks in lending.
Natural disasters, made more common by climate change, can cause significant financial losses for banks, which would require more capital in reserve. Activist groups also argue that lending to oil and gas companies should be seen as risky.
Powell acknowledged that the Fed has “narrow but important responsibilities” to use its oversight of banks to ensure they manage the risks to their finances created by climate change. And the Fed has taken modest steps to consider climate change, including joining the Network for Greening the Financial System, an international group of central banks and regulators.
That move and other speeches on climate change by Fed officials had drawn sharp criticism from congressional Republicans.
Powell’s comments reflected the symposium’s focus: How to ensure that central banks make interest rate policy decisions — their primary responsibility — free from political considerations. Powell said maintaining that independence meant avoiding other issues better overseen by elected officials.
“We should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not closely linked to our statutory goals and authorities,” he said.
Powell’s approach to climate change is more cautious than many of his counterparts abroad. The European Central Bank and the Bank of England, for example, have been more outspoken about the risks of climate change.
Unlike the Fed, the ECB can cite the fight against climate change as part of its official mandate to support the European Union’s economic policy – as long as it does not infringe on its primary task of controlling inflation. A top ECB official, Isabel Schnabel, said at the symposium that the Frankfurt, Germany-based ECB would not moderate its series of rate hikes, which are intended to curb record inflation, to support investment in renewable energy.
“There is concern that higher interest rates could discourage efforts to decarbonize our economies,” Schnabel said. “So does this mean we should raise our interest rates less forcefully? My answer is no. The green transition can only thrive with price stability.”
Schnabel, who sits on the six-member board that runs the bank, suggested the main obstacle to a green energy transition was not rising borrowing costs. Rather, she said, the primary obstacle is the lack of progress on the part of governments in implementing their commitments to reduce carbon emissions. These commitments include expanding support schemes, removing bureaucratic barriers and introducing comprehensive carbon pricing.
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McHugh reported from Frankfurt, Germany.