Fed Officials See Climate Change as Pressing Threat to Economy
The San Francisco Fed chief said damage from severe weather cost insurers more than $50 billion in 2018 alone.
(Bloomberg) --
Climate change poses current and future risks to the U.S. economy, warned two Federal Reserve policy makers at the U.S. central bank’s inaugural conference on climate.
“Climate change is an economic issue we can’t afford to ignore,” San Francisco Fed President Mary Daly said Friday in San Francisco. “The impact of these events go well beyond their immediate disruptions. They can destroy wealth, exacerbate existing income inequalities, and -- in the most severe cases -- displace people permanently.”
The Fed conference showed policy makers getting serious about what it means for their goals of preserving price stability and maximum employment while ensuring the soundness of the banking system. Disasters from devastating wildfires in California to storms pounding Eastern Seaboard cities have pushed climate change higher on the U.S. agenda, even as President Donald Trump formally begins withdrawing from the Paris climate accord.
Governor Lael Brainard echoed Daly, saying climate change could create uncertainty that held back investment and economic activity and was not something the Fed could ignore.
“Climate risks are projected to have profound effects on the U.S. economy and financial system,” she said in remarks prepared for delivery later on Friday. “As policies are implemented to mitigate climate change, they will affect prices, productivity, employment, and output in ways that could have implications for monetary policy.”
Their comments followed a similar warning by a senior New York Fed official who said Thursday that risk managers must not ignore climate threats. Brainard said the Fed was in discussions about participating in the Central Banks and Supervisors Network for Greening the Financial System in order to learn from peers abroad.
Climate-related impacts have been on especially dramatic display this year in Daly’s district, which encompasses nine western states including California, a $3 trillion economy that as a nation tops the U.K. as the world’s fifth-largest. The Golden State’s catastrophic wildfires and power outages to prevent more from igniting may already have have had a combined $11.5 billion impact, Bank of the West’s chief economist Scott Anderson estimates.
The San Francisco Fed chief said damage from severe weather cost insurers more than $50 billion in 2018 alone, and including uninsured damage nearly double that number.
“Sea level changes are disrupting communities from San Diego to Alaska,” Daly said. “Preemptive power outages and wildfires in populated areas of California are a new way of life. Really, every state in our district is somehow affected.”
Daly listed where the fallout from climate-related events spilled over into the Fed’s core mission, citing potential disruption to the U.S. payment system, ensuring the soundness of the nation’s banks, and implementing monetary policy.
“Early research suggests that increased warming has already started to reduce average output growth in the U.S. And future growth may be curtailed even further as temperatures rise,” she said.
--With assistance from Romy Varghese.
To contact the reporter on this story: Alister Bull in Washington at abull7@bloomberg.net
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alister Bull, Jeff Kearns
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