“Our job is to ensure that financial institutions, especially the largest banks, are able to understand and manage the significant risks they have taken,” said Jerome Powell, chairman of the US Federal Reserve, in an interview with the Economic Club of Washington, DC.
Federal Reserve Chair Jerome Powell on Wednesday called for a further investigation into the Fed’s threats to the health of U.S. banks, after which some Republicans in Congress complained that the Fed was overstepping its authority.
Over the past year, the Fed has taken steps to include risks from climate change in the oversight of the U.S. financial system. A key part of the Fed’s order is setting short-term interest rates to stimulate or slow the economy, as well as regulate banks to protect them from taking additional risks
Last year, the central bank joined an international body of central banks and regulators to coordinate the management of the risks that climate change has taken in the financial industry. In a report on financial stability last year, the Fed set up an internal climate committee to address such risks for the first time.
“The reason we focus on climate change is because our job is to ensure that financial institutions, especially the largest banks, understand and are able to take the significant risks that they have taken,” Paul said in an interview with the Economic Club of Washington, DC. “We only see it through the lens of the existing order.”
Climate risks include the possibility of banks taking out many mortgage loans for homes in coastal areas, or loans from oil and gas drillers that could fail if power generation switches to renewable sources.
Last month, 12 Republican senators wrote a letter to Powell, accusing the central bank of “overstepping the scope of the Federal Reserve’s mission.”
“We question both the purpose and effectiveness of climate-related banking regulation and situation analysis, especially since the Federal Reserve lacks jurisdiction and expertise on environmental issues,” the letter said.
The letter was signed by veteran Republican Senator Pat Tommy of the Senate Banking Committee and Alabama Republican Senator Richard Shelby, Mike Krapo of Idaho and Tim Scott of South Carolina, among others.
In the interview, Powell also reiterated the criteria the Fed would use to consider any future increase in its short-term rates, which had reached close to zero since the coronavirus epidemic began in March last year.
The recovery in the job market needs to be “effectively completed,” Powell said. And inflation needs to reach the Fed’s two percent annual target and “be on track to move above two percent on average for some time.”
“Only then will we consider raising interest rates and when we will raise interest rates,” the chairman said. “Until then, we won’t.”
The Fed has been purchasing 120 120 billion a month in Treasury and mortgage bonds to keep long-term mortgages low. Powell said the Fed would begin to slow these purchases after making “significant further progress” on its targets.
“This possibility was good before we considered raising interest rates,” Powell said.
As in the past, Powell also acknowledged that many disadvantaged Americans have not benefited from the recovery and in reality they continue to suffer. He mentioned a group of homeless people living in tents at the Fed headquarters or on their way to work in Washington, D.C. He also noticed this in an interview with the Sunday0 Minute media last Sunday.
“It’s a lot of tents, it’s a lot of people,” he said. “It hits me every day while it’s running … we don’t have the tools to deal directly with them. However, you know … many of them were probably working before the epidemic hit in February 2020. And I think that They need to be with us as we make decisions about monetary policy. “