The Federal Reserve Bank, the central bank of the United States, is supposedly guided in all of its actions by what is known as its “dual mandate.” By law, it is charged with maintaining price stability throughout the economy and with maximizing employment.
Sometimes, these two goals are difficult to reconcile with one another. In recent years, there has been some talk in Congress of changing this and giving the Fed only the single mandate of price stability. Whatever the merits of that proposal, though, it is a far cry from what the central bank now finds itself doing, angling to issue dubious guidance for the financial system about climate change and its potential effects.
On the fanciful theory that weather poses a direct threat to the financial system, the Fed has been trying to get banks to detect climate-related liabilities on their books. The goal is to produce a comprehensive report in 2023 declaring that the sky is falling on the nation’s banks, another propaganda victory for climate alarmism that the media can trumpet. This will allow an unelected but influential quasi-governmental organization to put inappropriate political pressure on the financial world to dump fossil fuels despite the fact that people need them — and need them to be cheap.
It could take another retrograde step toward new Fed policies that govern banks based on climate-related metrics rather than those related to finance.
Having failed to convince sensible, ordinary people to sacrifice their standard of living voluntarily, climate activists, now embedded in the Biden administration, are looking for new ways to impose their agenda without the voters’ consent. (In that, they are following the bog-standard playbook of the Left.) They have failed in Congress, mostly failed in the courts, and found limited success in corrupting corporate governance, and now they are trying to exercise influence through the Fed.
There is no scientific consensus on the long-range effects of climate change that could enable the Fed to issue appropriate guidance. As Republican Sen. Pat Toomey, the ranking member on the Banking Committee, noted in a hearing this spring, “Neither the warming of the Earth’s temperature nor severe weather events are a threat to the stability of the financial system.” Toomey pointed out that four of the five costliest hurricanes in U.S. history occurred within the last 11 years, and yet “we haven’t found one bank failure caused by any weather event. In fact, we’re not aware of any bank failure in the modern era due to weather.”
Fed meddling in climate change is harmful to prosperity. It has already joined something called the Network of Central Banks and Supervisors for Greening the Financial System, the explicit goal of which is to “mobilize mainstream finance to support the transition toward a sustainable economy.”
This is a political goal, something for elected members of Congress and state legislatures to figure out. It is not a financial goal for unelected central bankers to tackle as a substitute in an area extremists cannot secure democratic support. It falls nowhere within the Fed’s dual mandate to encourage or discourage certain types of investments in the name of climate change.
Fed Chairman Jerome Powell once understood this, saying, “Society’s broad response to climate change is for others to decide — in particular, elected leaders.”
Especially now, with inflation clobbering U.S. consumers, Powell needs to get his house in order and get back to doing what the Fed is actually supposed to do: stabilize prices. In current circumstances, that would be both novel and not a moment too soon. Bidenflation is not a matter to be ignored by central bankers in favor of indulging climate alarmists.
