Federal Reserve Chairman Jerome Powell was disappointingly ill-prepared for a slew of questions this week—unusual for a hearing on interest rate policy—about the central bank’s role in combating climate change.
Whereas overseas counterparts Mark Carney of the Bank of England and European Central Bank President Christine Lagarde have proactively called for a bigger financial regulatory role in ensuring the financial sector does not unduly favor environmentally harmful industries and practices.
Powell’s take during Congressional testimony this week, in which he faced several rounds of questions about climate, seemed like more of an effort to distance the Fed from any key responsibilities.
“Climate change is a very important issue—that Congress has largely assigned to other agencies,” Powell began.
When asked about what the Fed is currently doing on the issue of climate, Powell said: “It’s early days on that.”
Really? Climate change is hardly a new threat. What has the Fed been doing all this time?
During his last press conference in January, Powell was asked why the Fed has not joined dozens of other global central banks in the Network for Greening the Financial System.
“We’ve been looking at joining in one form or another,” he said. “We probably will do that at some point. So that’s—that’s an ongoing question. But we’re very much attending those meetings and taking part in them.”
That’s pretty weak tea, and his tone at the press conference mirrored his message to Congress: don’t look at us.
“Climate change is an important issue, a very important issue, but it’s essentially assigned to many other agencies in the federal government and state governments for leadership on that,” he said.
“Society’s overall response to climate change needs to be decided by elected officials and not by the Fed.”
A recent Peterson Institute working paper by Patrick Honan, ex-governor of the Bank of Ireland, suggests this approach could prove counterproductive.
“The secondary mandates, whether explicit or implicit, of central banks arguably warrant attention to large systemic issues like climate change and inequality, to the extent that these can be significantly influenced without detracting from the primary goals of monetary policy,” Honohan writes.
“Central banks have been behind the curve of society’s response to these issues, and could make a worthwhile contribution in a number of respects,” he adds.
“Indeed, while they may fear an encroachment on their independence, such a threat may be greater for central banks that neglect reasonable public expectations in these dimensions.”