The U.S. central bank takes climate change risk into its assessments of financial stability

Severe weather carries economic and financial stability risks and major central banks have already made climate change an explicit part of their financial stability remits. Despite the fact that President Donald Trump’s administration still denies climate change exist, the U.S. central bank now also consider taking climate change risk into its assessments of financial stability, and may even take it into account when setting monetary policy.

It seems the reality of the climate crisis is too much for the Federal Reserve to ignore anymore. Scientists all over the world are in broad agreement that carbon dioxide from cars, power plants and other human sources are behind the climate change that’s already making powerful hurricanes, severe drought, and other weather extremes more frequent.

“To fulfill our core responsibilities, it will be important for the Federal Reserve to study the implications of climate change for the economy and the financial system and to adapt our work accordingly,” Fed Governor Lael Brainard said in remarks released at the start of the Fed’s first-ever conference on climate change and economics in San Francisco, Reuters reports.

The Fed, she said, will need to look at how to keep banks and the financial system resilient amid risks from extreme weather, higher temperatures, rising sea levels and other effects of the accumulation of greenhouse gases in the atmosphere.

The attention for the San Francisco conference was so big that it was oversubscribed. Due to this a webcast was created to meet demand. Papers presented at the conference showed how climate change has crimped growth and presented ideas on how policy, including monetary policy, can be used to mitigate harm.

Ms. Brainard said the central bank now discuss how it might participate in a network of about 40 global central banks that was created in 2017 to promote climate-related financial and macroeconomic issues. The goal of becoming more active with the Central Banks and Supervisors Network for Greening the Financial System, she said, would be to “learn from our international colleagues’ approaches to measuring and managing climate risks in the financial system.”

As social norms have shifted, the Fed has talked about inequality more openly and regularly without a backlash. A similar evolution seems to be underway when it comes to the climate.

“Climate change is an issue we can’t afford to ignore,” San Francisco Fed President Mary Daly said at the start of the conference. “This is not a hypothetical risk of the future...the risks are here, we have to deal with them.”

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