Bloomberg says the presentations noted that climate change makes investments riskier, blunts workers’ productivity, and shakes up monetary stability.
President Donald Trump and some of his key advisors have been famously skeptical of scientific data about shifting climates. So the central bank’s decision to host a daylong series of climate talks this week – the first ever for the Federal Reserve system – appears to mark another step in its growing public recognition that climate change is creating financial uncertainty and an increasing difference of opinion on the importance of the topic.
“The Federal Reserve’s job is to promote a healthy, stable economy,” San Francisco Fed President Mary Daly said at the Nov. 8 event. “This requires us to consider current and future risks, whether we have a direct influence on them or not. Climate change is one of those risks.”
Bloomberg also weighed in with the observation that the conference “heightens tensions between the Fed and the President,” who has called climate science a hoax, and repeatedly blasted the bank on Twitter – mostly for not cutting interest rates.
Bloomberg very briefly noted a few conference highlights. It said “one conference paper,” presented by Dana Kiku, an associate professor of finance at the University of Illinois Gies College of Business, detailed how rising temperatures create long-term economic risks. Another by Sandra Batten, a senior economist at the Bank of England, concluded that the risks of climate change can trigger inflation and cause businesses and individuals to struggle to anticipate how the economy will perform.
Rising temperatures also reduce the labor supply for outdoor workers in industries such as construction, mining, and manufacturing, said Solomon Hsiang, a public policy professor at the University of California at Berkeley Goldman School of Public Policy. That leads to reduced work time and damaged firm profits, Hsiang said.
Other economists spoke about the link between pollution and economic output, the possibility of anti-oil policies generating a run on oil and how differences in nations’ trade policies create implicit subsidies to carbon emissions.
Fed Chairman Jerome Powell wrote earlier to Sen. Brian Schatz, D-Hawaii, that severe weather events “have the potential to inflict serious damage on the lives of individuals and families, devastate local economies (including financial institutions), and even temporarily affect national economic output and employment.”
As a result, “these events may affect the economic conditions, which we take into account in our assessment of the outlook for the economy,” Powell said.
Damage from severe weather in the U.S. cost insurers more than $50 billion in 2018, Daly said. That figure nearly doubles if uninsured damage is taken into account, she said.
“This impacts banks’ customers, making it harder for them to satisfy their loan obligations,” Daly said. “And this can ultimately stress banks’ balance sheets. So ensuring that financial institutions are regularly evaluating their exposure to climate-related risks is an increasingly important part of our work.”
The talks also raised concerns about future efforts by Congress to deal with climate change problems.
Schatz, who sits on the Senate Banking Committee, told Bloomberg that he is readying legislation that would direct large banks and other financial institutions to conduct stress tests to gauge whether they are well-positioned to absorb climate change risks.
So, we will see. It would seem to be an uphill climb to expect that the impact of the Fed’s new focus on the climate will rapidly change the policies of the numerous agencies including USDA and others who have been struggling with internal efforts to downplay the issue. At the same time, political concerns about the climate are growing widely and likely will continue to do so in spite of the skeptics’ efforts. This is a debate producers should watch closely as it intensifies, and especially if it results in new practices and rules applied by the banking community, Washington Insider believes.