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UPDATE: Climate risk in focus as Biden renominates Fed Chairman Jerome Powell for another four years

22 November 2021 Amena Saiyid

President Joe Biden has renominated current US Federal Reserve Board Chairman Jerome Powell to serve for another four years, citing a need for financial stability and a shared belief about the risks that climate change pose to the US economy.

Biden also nominated current Fed Board Governor Lael Brainard to serve as the vice-chair of the Board.

Announcing his decision 22 November, Biden said his economic agenda coupled with decisive actions taken by Powell and Brainard at the Fed have helped to steer the nation through "the worst downturn in modern American history and put us on the path to recovery."

The Fed is charged with setting the nation's monetary policy and ensuring financial stability by taking actions to minimize systemic risks.

"If we want to continue to build on the economic success of this year we need stability and independence at the Federal Reserve," Biden said.

The seven members of the Federal Reserve Board including the chair and vice-chair are nominated by the president and confirmed by the US Senate.

Powell was first nominated to head the Fed in 2018 by President Donald Trump, replacing Janet Yellen who now serves as the US Treasury Secretary. Brainard was appointed by President Barack Obama in 2014 and will now replace Richard Clarida as vice chair. Trump appointed Clarida in 2018 to serve out a term that expires in January 2022.

Share 'Deep belief' on climate risk

Biden said both Powell and Brainard share his "deep belief" that urgent action is needed to address the economic risks posed by climate change and related emerging risks that threaten the country's financial stability.

In remarks delivered after announcing the nomination, Biden said Powell made it clear to him: "A top priority will be to accelerate the Fed's effort to address and mitigate the risks -- the risk that climate change poses to our financial system and our economy."

Acknowledging the nomination, Powell said the nation faces challenges and opportunities as it emerges from the pandemic.

"The unprecedented reopening of the economy, along with the continuing effects of the pandemic, led to supply and demand imbalances, bottlenecks, and a burst of inflation," Powell said in a statement, as he promised to use the tools available to the Fed to tackle inflation that is afflicting households.

Powell also pledged to "vigilantly guarding the resilience and stability of the financial system, addressing evolving risks from climate change and cyber attacks, and facilitating the modernization of the payments system while protecting consumers."

Likewise, Brainard said she is honored to be chosen and committed to placing working Americans at the center of the Fed's efforts to ensure that "financial markets are thriving and resilient, and the economy is sustainable for future generations."

The Fed has been studying approaches for assessing climate risk in response to Biden's directives issued at the start of the year.

In March, Powell acknowledged the risk climate poses to the global financial stability at a meeting of the US Financial Stability Oversight Council (FSOC), saying the Fed plans to include climate change risk as part of its framework to assess the financial stability of banks that it oversees.

The Fed is a member of the FSOC, which Congress created in 2010 after the subprime mortgage crisis to identify and monitor risks as well as respond to emerging threats to financial stability. In late October, FSOC delivered its report on climate risk, singling out scenario analysis as the approach to address climate risk.

Although Powell acknowledged FSOC's findings, he stopped short of indicating a timeline for when the Fed's study would be completed and when action would ensue. He reiterated what Brainard told the Federal Reserve Stress Testing Research Conference that the central bank was developing "scenario analysis" to assess the possible risks associated with climate change to the resiliency of individual financial institutions and the financial system as a whole.

But those statements haven't been enough to detract critics who say Powell hasn't taken any concrete action yet to address climate risk despite setting up two different committees within the central bank to address the looming crisis and its threat to the US banking system.

The Fed has an obligation to help protect the economy and the financial system from the growing dangers of climate change, and to do so in a just and equitable manner, Sierra Club Fossil-Free Campaign Finance Management Ben Cushing said in a statement. To date, Cushing said, "the Fed has failed to adequately deploy the tools available to address the threat climate change poses to our economy, and this inaction is putting us all at risk."

Cushing said he looks forward to hearing what actions Powell plans to take during the Senate confirmation.

Democrats split over Powell

Senate Banking Committee Chairman Sherrod Brown, Democrat-Ohio, and US Senator Pat Toomey, of Pennsylvania who is the top-ranking Republican on the committee, have indicated their support for Powell.

In contrast to Brown, progressive Democrats indicated they do not intend to back Powell's nomination. US Senator Jeff Merkley, Democrat-Oregon, tweeted out that he will "vote no" because of Powell's inaction on climate. "We need a focus on climate action in all facets of the federal government, including the Federal Reserve. Jerome Powell has already proven the he won't answer calls for climate action," Merkley said.

In a joint statement with US Senator Sheldon Whitehouse, Democrat-Massachusetts, Merkley said Powell refused to address climate risks at the Fed, arguing that it is not the job of the central bank to set regulations for climate risk. "Jerome Powell refuses to recognize climate change as an urgent and systemic economic threat," they said.

Likewise, US Senator Elizabeth Warren, Democrat-Massachusetts, made no bones about her opposition to Powell's nomination in a statement that she also tweeted out. Warren said "Powell's failures on regulation, climate, ethics" make the position of Vice Chair of Supervision critically important. Biden said he will announce nominees to fill the three vacant seats on the Fed Board including the important position of Vice Chair for Supervision in early December.

Markets react positively

Salman Banaei, head of public policy at cryptocurrency analysis firm Chainanalysis, said the White House chose "the path of least resistance" in choosing to renominate Powell, selecting Brainard to be vice chair and deferring a decision on who he will pick to serve as Vice-Chairman for Supervision at the Federal Reserve.

In a tweet, Banaei said Biden will probably pick a "non-controversial technocrat" for the Federal Reserve spot to avoid the furor over his nomination of Saule Omarova to head the US Treasury's Office of the Comptroller of the Currency.

Despite the misgivings expressed by some Democrats, the markets reacted positively to Powell's nomination as did the business community that the financial policies in place would continue.

The Dow gained 293 points, or up 0.83%, as did the S&P 500, which moved up 25.6 points in morning trading.

Noting that stable market conditions are good for all kinds of finance, including climate finance, IHS Markit Climate and Clean Tech Executive Editor Peter Gardett said Powell has delivered on the Fed's stability mandate through what he called is the "one of the most tumultuous periods" In US history.

"As the perceived 'stability nominee,' Biden's choice is potentially good for cleantech and climate finance, even if other potential nominees have been more vocal about the Fed's role in managing climate risk," Gardett told Net-Zero Business Daily.

The US Chamber of Commerce also issued a statement in support.

--Updated with remarks delivered by President Joe Biden as well as those issued by Fed Chair Jerome Powell and Fed Governor Lael Brainard.

Posted 22 November 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst

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