Federal Reserve Must Not Become a Climate Policymaker, Senate Republicans Say

Jerome Powell rejects assertions Fed is becoming a climate policymaker

Federal Reserve Chair Jerome H. Powell testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington on March 7, 2023. Kevin Lamarque/Reuters

In a letter to Federal Reserve Chair Jerome Powell, a group of Senate Republicans criticized the central bank for initiating its climate agenda while the institution grapples with rampant inflation and banking turmoil.

Upper chamber GOP officials, led by Sen. Dan Sullivan (R-Alaska), wrote that the Fed is inching toward implementing climate change into its mandate, which could diminish its focus on fighting elevated price pressures and “a crisis of confidence” in the financial sector. As per the Federal Reserve Act, the central bank’s chief mandates are price stability, maximum employment, and managing long-term interest rates.

“We are growing increasingly frustrated with the Federal Reserve’s engagement on environmental policymaking and research far outside of its statutory mandate, all while there is persistent inflation and a crisis of confidence in the banking sector,” stated the coalition of Senate Republicans, which included Sens. Mike Lee (R-Utah) and Mike Crapo (R-Idaho).

The May 17 letter noted that the Fed isn’t a “climate policymaker” but Powell has gradually incorporated ESG (environmental, social, and governance) principles into the risk analysis of banks, also known as a climate stress test.

“This is policy masquerading as ‘risk analysis,’” the letter reads. “The Fed is actively signaling that bank activities that do not further the goals of net zero by 2050 are inherently risky and disfavored. This drives capital away from traditional energy development at a critical time for our economic and national security, while empowering America’s adversaries. This climate stress test is the logical result of a persistent and growing track record of climate activism at the Fed.”

Sen. Dan Sullivan (R-Alaska) speaks during a Senate Armed Services Committee confirmation hearing in Washington on May 7, 2020. Al Drago-Pool/Getty Images

In January, Fed Vice Chair for Supervision Michael S. Barr announced a pilot program that would request that the country’s six largest banks share the effects climate change would have on their companies. The review would disclose how hurricanes, floods, and other extreme weather events could affect these financial institutions’ commercial real estate holdings and loan portfolios, especially in the Northeast.

The project had been roughly three years in the making.

Republican Senate members further alluded to the Fed publishing an abundance of documents, policy papers, and studies on climate change. In addition, the Fed’s regional banks have hosted climate-related events. In December 2020, the Fed announced that it formally joined the Network of Central Banks and Supervisors for Greening the Financial System. This initiative’s objective is to outline suggestions for central banks’ role in climate change and accelerate the presence of green finance.

But Powell has repeatedly insisted that the central bank isn’t a climate policymaker and that the role of policymaker should be left up to the legislative branch.

“We are not looking to move into an area where we’re actually becoming a climate policymaker,” Powell told the House Financial Services Committee during his semi-annual Monetary Policy Report in March. “I would completely agree with you that over time, that border needs to be very carefully guarded.”

In a speech at the Symposium on Central Bank Independence in Sweden in January, Powell shared his view that the Fed and its counterparts “resist the temptation to broaden [their] scope to address other important social issues of the day.”

“Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence,” he said.

Fed Governor Christopher Waller recently pushed back against efforts to include climate change into Fed policymaking, telling a conference in Spain that he doesn’t “believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States.”

The letter from the Senate Republicans also noted that engaging in the political arena regarding climate change would “greatly undermine” the Fed’s independence.

“The legitimacy of the institution is on the line, and we again urge you to do everything in your power to ensure that the Fed operates solely within its statutory authority,” the letter concluded.

A Fed spokesperson confirmed to The Epoch Times that the central bank received the letter and intends to respond.

SEC and Climate Change

Sullivan wrote a separate letter to Securities and Exchange Commission (SEC) Chair Gary Gensler about the federal regulator’s emphasis on climate change.

“The SEC should be ... ensuring that American investors are protected from a shaky Chinese economy and dangerously fickle and politically focused authoritarian rule by the CCP,” Sullivan wrote.

In April 2022, Sullivan and his Republican colleagues in the Senate urged Gensler to halt the SEC’s proposed climate disclosure rule that would mandate publicly traded firms to release climate-focused information, such as their greenhouse gas emissions.

“After failed attempts to enact radical climate policy via legislation, this rule is yet another example of the Biden Administration’s efforts to have unelected bureaucrats implement its preferred agenda through regulation,” the senators wrote in a letter. “Addressing climate issues is a complex task with widespread consequences across the U.S. economy. We believe devising climate policy is the job of elected lawmakers, not unelected regulators at the SEC.”

SEC Commissioner Hester Peirce, who was appointed by then-President Donald Trump in 2018, asserted in a March 2022 speech that the proposal “exceeds the Commission’s statutory limits.”

The SEC’s climate disclosure rules, which integrate ESG philosophy, are expected to be finalized and implemented later this year.