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Prof. Aseem Prakash and Grad Sandra Ahmadi on The Regulatory Review, "Climate Change and Price Stability Mandates at Central Banks"

Submitted by Stephen Dunne on September 15, 2021 - 1:33pm

The reappointment of Jerome Powell for another term as the Fed Chairman is very much in news.  One complaint his critics have is that Powell is insufficiently committed to "mainstreaming" climate issues in Fed decision making. Ph.D. candidate Sandra Ahmadi and Prof. Aseem Prakash published a commentary on "Climate Change and Price Stability Mandates at Central Banks" that examines this issues.

It is true that central banks have not cohesively responded to the climate issue, with the U.S. Board of Governors of the Federal Reserve System and the European Central Bank (ECB) taking different positions. Jerome Powell, Chair of the Federal Reserve, maintains that climate change is a concern only as it relates to the Federal Reserve’s mandates. By contrast, the President of the European Central Bank, Christine Lagarde, has articulated a different approach. Since the beginning of her tenure as president, Lagarde has been vocal about her perspective on climate impacts. If Powell and Lagarde support a similar aim, anchored in the logic of risk assessment and price stability, why do they frame it differently? Arguably, the Powell-Lagarde divergence reflects the politics of the two jurisdictions. However, instead of fixating on what central banks say, we should focus on what they do. Maintaining price stability will probably remain the most important metric for assessing their behavior. Yet innovations to enhance the resilience of the financial system against climate risks might soon become another metric.

Please link here for the full read.