Powell: Fed has ‘narrow but important’ climate responsibilities

Speaking at the symposium on central bank independence in Sweden on January 10, Jerome Powell, chair of the US Federal Reserve, hinted at an unwillingness to expand the central bank’s scope to include climate action. According to Powell, expanding the bank’s range of responsibilities beyond monetary policy could risk undermining its independence. Powell argued that the bank should “resist the temptation to broaden our scope to address other important social issues of the day”. The erosion of independence, Powell stated, was driven by the expected distributional consequences of climate policy. At the same time, Powell did not deny that the Fed should keep an eye on climate-related financial risks. “In my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change,” he said.