The Federal Reserve has only a limited role to play in combating climate change, Chair Jerome Powell said Tuesday, a stance that puts him at odds with environmental activists who have attempted to push central banks to restrict lending to energy companies.
"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," the Fed chair said."The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors."
Climate activists have pushed central banks, including the Fed, to use their supervisory powers over commercial banks to push for greater consideration of environmental risks in lending. They note that natural disasters, made more common by climate change, could impose significant financial losses on banks, which would require more capital held in reserve. Activist groups also argue that lending to oil and gas companies should be seen as risky.
Powell's comments reflected the overall focus of the symposium: How to ensure that central banks make decisions on interest rate policies — their key responsibility — free of political considerations."We should 'stick to our knitting' and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities,'" he said.
At the same time, Powell's stance on climate change is more cautious than those of many of his counterparts overseas. The European Central Bank and Bank of England, for example, have been more outspoken about climate change risks.Unlike the Fed, the ECB can cite the fight against climate change as part of its official mandate to support European Union economic policies — so long as it doesn't intrude on its primary task of controlling inflation.
"There is concern that higher interest rates may discourage efforts to decarbonize our economies," Schnabel said."So does this imply that we should raise our interest rates less forcefully? My answer is no. The green transition can only thrive with price stability."
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