The fight over control of the Federal Reserve has revolved around interest rates and inflation, but President Donald Trump’s choice to be the bank’s next chair could sway how the agency assesses climate risks, too.
In a speech last year to a group of financial leaders that was broadly critical of the Fed, Kevin Warsh called climate change a “politically charged” issue that the bank would do better to avoid.
“Central bankers and bandwagons should be strangers,” said Warsh, who has previously served on the Fed’s board and is currently a visiting fellow at Stanford University’s Hoover Institution. “It would be better for the Fed’s long-term success to focus on the time-honored and the enduring, rather than the fashionable and the fleeting. I observe the modern central bank to be a bit too willing to traffic in contraband.”
An example Warsh gave was the Fed’s joining and later withdrawal from the Network of Central Banks and Supervisors for Greening the Financial System, a group that aims to strengthen responses to climate change and includes most of the world’s major central banks. The Fed joined the group ahead of President Joe Biden’s inauguration five years ago, and withdrew right before Trump took office last January.
“Some of you might disagree with one of those options, or both of those options,” Warsh said last year. “I think the match is what bothers me perhaps most of all.”
Warsh did not immediately respond to a request for comment sent to him through the Hoover Institution.
There is broad agreement among economists that climate change is affecting the economy and poses risks to the financial system. But there’s substantial debate about whether or how that might affect the work of central banks like the Fed.
Some economists within the Fed have argued that climate change poses broad risks to financial stability. Banks could be exposed if storms or extreme weather cause widespread bankruptcies, for example. Already, insurance companies are withdrawing from some markets due to worsening wildfires and damage from coastal storms. Some research has indicated that climate change is already curtailing economic growth.
The Fed’s Board of Governors has published research on these risks.
Derek Lemoine, a professor of economics at the University of Arizona’s Eller College of Management, said this type of research should be a core piece of the Fed’s work.
“Its mandate is to maintain price stability and to maintain employment, and climate change is clearly relevant to both of those things,” Lemoine said. “So the Fed would be, in my view, violating its mandate to not at least study those things. Whether or not the study shows that it affects what the Fed does is another question.”
Many activists and some Democrats have criticized the Fed for not doing more to address climate change. The European Central Bank, in particular, has taken more steps to try to limit those risks.
In 2023, the Fed and two other agencies issued guidelines for financial institutions on assessing their own climate risks. In October, the agencies withdrew the guidelines, saying they were not necessary because existing rules required banks to examine “a range of risks, including emerging risks.”
The Trump administration has sought to roll back climate-related regulations in the financial sector more broadly. The Securities and Exchange Commission is seeking to withdraw rules that would require greater climate disclosures from publicly traded companies, and it has recently worked to make it harder for shareholders to press companies to take action on climate change and other issues.
Taken together, the moves are making the financial system less transparent and less stable, said Andrew Behar, chief executive of As You Sow, a shareholder advocacy group.
“The regulations are to reduce risk,” Behar said.
About This Story
Perhaps you noticed: This story, like all the news we publish, is free to read. That’s because Inside Climate News is a 501c3 nonprofit organization. We do not charge a subscription fee, lock our news behind a paywall, or clutter our website with ads. We make our news on climate and the environment freely available to you and anyone who wants it.
That’s not all. We also share our news for free with scores of other media organizations around the country. Many of them can’t afford to do environmental journalism of their own. We’ve built bureaus from coast to coast to report local stories, collaborate with local newsrooms and co-publish articles so that this vital work is shared as widely as possible.
Two of us launched ICN in 2007. Six years later we earned a Pulitzer Prize for National Reporting, and now we run the oldest and largest dedicated climate newsroom in the nation. We tell the story in all its complexity. We hold polluters accountable. We expose environmental injustice. We debunk misinformation. We scrutinize solutions and inspire action.
Donations from readers like you fund every aspect of what we do. If you don’t already, will you support our ongoing work, our reporting on the biggest crisis facing our planet, and help us reach even more readers in more places?
Please take a moment to make a tax-deductible donation. Every one of them makes a difference.
Thank you,
Nicholas Kusnetz
Reporter, New York City
Nicholas Kusnetz is a reporter for Inside Climate News. Before joining ICN, he worked at the Center for Public Integrity and ProPublica. His work has won numerous awards, including from the Society of Environmental Journalists, the American Association for the Advancement of Science and the Society of American Business Editors and Writers, and has appeared in more than a dozen publications, including The Washington Post, Businessweek, The Nation, Fast Company and The New York Times. Nicholas can be reached on Signal at nkusnetz.15.
