- Federal Reserve officials are signaling fresh concerns about the dangers that extreme weather poses to the economy and to the financial system.
- The US has been relatively reluctant to incorporate climate change into monetary policymaking,
- That hesitancy is potentially fueled by deeply partisan debates around the issue in Washington.
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As the effects of climate change grow increasingly evident across the world, Federal Reserve officials are signaling fresh concerns about the dangers that extreme weather poses to the economy and to the financial system.
“We’re seeing a frequency and intensity of weather events…that they are starting to be more than tail events,” Robert Kaplan, the president of the Federal Reserve Bank of Dallas, said at an American Economic Association conference in San Diego this weekend. “They’re starting to affect economic outcomes.”
The US has been relatively reluctant to directly incorporate climate change into monetary policymaking, potentially because of the deeply partisan debates around the issue in Washington.
Federal Reserve Chairman Jay Powell has acknowledged the imminent risks of climate change and that humans contribute to it. He has also questioned how much of a priority it should be for the central bank, drawing praise from conservatives.
“Credit to Fed Chairman Jay Powell for telling Congress that climate stability isn’t part of its mandate,” the Wall Street Journal editorial board wrote in late 2019. “This matters because other central bankers have been all too happy to join the climate-change virtue parade.”
But against a backdrop of devastating weather events and predictions for the planet, there are signs the US central bank is ramping up its focus on climate change. Scientists from 13 federal agencies estimated last year that climate change would shrink gross domestic product by a tenth by 2100 if steps weren’t taken to reduce the carbon emissions that warm the planet.
In November, the Federal Reserve Bank of San Francisco held a climate research conference for the first time ever. Mary C. Daly, the president of that branch, drew direct lines between climate change and the core responsibilities of the Fed.
“Extreme weather events like hurricanes, floods, and wildfires destroy property and disrupt essential services like health care and education. But they also impact how people buy things,” she said at the conference. “Higher sea levels, heavier rainfalls, dryer conditions, and the associated fallout can cause catastrophic losses to property and casualty insurers.”
At a separate conference in New York that month, another Fed official said weather events have cost the US more than $500 billion over the past five years.
“Climate change has significant consequences for the US economy and financial sector through slowing productivity growth, asset revaluations and sectoral reallocations of business activity,” Kevin Stiroh, an executive vice president at the New York Fed who is responsible for bank regulation said at the GARP Global Risk Forum.