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Powell defends the Fed’s growing focus on climate change threats | Banking news

“Our job is to ensure that financial institutions, banks, especially the largest banks, understand and are able to manage the significant risks they incur,” said the Fed Chairman. US Jerome Powell said in an interview with the Economic Club of Washington, DC.

Federal Reserve Chairman Jerome Powell on Wednesday defended the Fed increasingly closely monitoring the threat climate change could pose to the health of US banks, after some Republican congressional members complained that doing so the Fed was beyond its mandate.

Over the past year, the Fed has taken steps to incorporate climate change risks into the US financial system’s oversight. An important part of the Fed’s mandate, apart from setting short-term rates to stimulate or slow the economy, is to provide banks with precaution against taking excessive risks.

Last year, the central bank joined an international organization of central banks and regulators to coordinate the management of the risks climate change poses to the financial sector. In a report last year on financial stability, the Fed invoked such risks for the first time and formed an internal climate committee.

“The reason we focus on climate change is that our job is to ensure that financial institutions, banks, and especially the largest, understand and are able to manage the appropriate risks. they have to suffer, ”said Powell in an interview with the Economic Club of Washington, DC. “We only see it through the prism of that existing mission.”

Climate risks include the possibility that banks hold too many mortgages for homes in coastal areas threatened by sea level rise, or loans to oil and gas drillers. may fail if energy production shifts to renewable sources.

Last month, 12 Republican senators wrote a letter to Powell accusing the central bank of “going beyond the mandate of the Federal Reserve”.

“We question both the purpose and effectiveness of climate-related banking and scenario analysis, especially because the Federal Reserve lacks authority and expertise in environmental issues. “,” The letter wrote.

The letter was signed by Sen. Pat Toomey, senior Republican member of the Senate Banking Committee, and Republican Senators Richard Shelby of Alabama, Mike Crapo of Idaho and Tim Scott of South Carolina, with others.

In the interview, Powell also reiterated the criteria the Fed will use to consider any future short-term rate hikes, which have been pegged close to zero since the outbreak of the coronavirus pandemic in December. 3 years ago.

The job market recovery will have to be “done effectively,” says Powell. And inflation will have to hit the Fed’s annual two percent target and look “on track to run moderately above two percent for a while.”

“That’s when we look at raising rates, and that’s when we’re going to raise rates,” said the Chairman. “Until then, we won’t.”

The Fed bought $ 120 billion in Treasury and mortgage bonds each month to keep long-term borrowing costs, such as mortgage rates, low. Powell said the Fed will start slowing those purchases after it makes “further significant progress” on its goals.

“That is most likely ahead of the time when we look at rate hikes,” said Powell.

As in the past, Powell admits that many disadvantaged Americans have not benefited from the recovery and have, in fact, continued to do so. He mentioned a group of homeless people he saw living in tents in Washington, DC on his way to or from Fed headquarters work, which he also noted in an interview last Sunday on the news program 60 Minutes.

“It’s a lot of tents, there’s a lot of people,” he said. “It attacks me every day as I drive through it… We don’t have the tools to deal with them directly. But, you know… many of them could have been working in February 2020, before the pandemic struck. And I think they need to stay in the room with us when we make a monetary policy decision. ”



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