Toomey Calls Fed’s Climate and Race Research ‘Political’ Mission Creep

Republican Senator Patrick Toomey said the San Francisco Federal Reserve’s research into topics including climate change and racial justice is “politically charged” and could result in “mission creep” from the independent agency into policy matters usually left to elected officials.

Toomey, the ranking member of the Senate Banking Committee, addressed the letter to San Francisco Fed President Mary Daly, asking for records pertaining to the bank’s seminar on climate economics, racial-justice research and its research and community development expenses from the last 10 years. The San Francisco Fed said it had received the letter and looked forward to discussing the contents with Toomey’s office.

“Several Federal Reserve banks, including the FRBSF, have increasingly been engaged in research on social-policy topics reflective of the political and normative leanings of unelected Federal Reserve Bank officials,” Toomey wrote in the letter Monday. “This approach has inserted the Federal Reserve into the emotionally charged political arena -- a place where the Federal Reserve seldom has ventured, and for good reason.”

The letter comes on the heels of one sent by several Republican members of the Senate Banking Committee to Fed Chair Jerome Powell earlier this month questioning climate-based bank regulation. Powell was also asked about climate-change research and regulation several times in hearings before Congress last week.

The San Francisco Fed is planning a multi-day virtual seminar on climate economics research, starting April 1. Many of the Fed system’s other reserve banks have also been researching the potential consequences of climate change for the economy, and the Fed’s board of governors voted unanimously last year to join the Network of Central Banks and Supervisors for Greening of the Financial System, a group that aims to study the effects of climate change on financial systems.

“The Federal Reserve -- we’re not climate scientists, we don’t have the toolkit in the way we’re set up, in our structure, to fight climate change, but we absolutely are responsible for understanding climate risk, the risk to the economy that severe weather events pose, or changing weather poses, and then how to mitigate those risks so that we can continue to deliver our public policy to the American people,” Daly said last week in a virtual event with Northeastern University.

Daly went on to talk about wildfires in her district, which spans across nine western states including California, and how they damage property on which people and banks own mortgages.

In a speech later on Monday on the importance of central bank independence, Governor Chris Waller said climate change was “Congress’s job” and Fed research was confined to how it could affect its goals for maximum employment and stable prices.

“All we do is study it, try to understand its impact on the economy and what that would imply for both economic stabilization or regulatory actions,” he said in response to a question.

In response to questions in Congress about the Fed’s climate-change research and policies last week, Powell said the Fed has a responsibility to look into how it may impact financial institutions, and that climate change will likely have a significant impact on the U.S. economy.

Toomey said in his letter that the Fed’s research into these topics may be “meritorious” but he worries that the Fed is dedicating too many resources to these topics. He notes that all 12 of the Fed’s regional banks and the board of governors in Washington have research departments. Toomey also asked for a briefing from Glenn Rudebusch, an executive vice president in the San Francisco Fed’s economic division and one of the organizers of its climate conference.

Toomey questioned whether some of the Fed’s work is encroaching on that of other agencies, such as the Department of Labor or the Equal Employment Opportunity Commission.

Fed leaders have been increasingly vocal about economic inequality in the U.S., especially during the pandemic, which disproportionately impacted Americans of color and women. The Fed revised its monetary policy strategy framework last year and leaders including Powell have said that they’ll likely let the unemployment rate fall lower than was previously thought sustainable, as the last recovery taught them that by doing so, it allows traditionally sidelined workers to enter the labor force.

The San Francisco Fed and its 11 regional counterparts have together hosted a series of virtual conferences on the impacts of racism in the economy.

Atlanta Fed President Raphael Bostic, the first Black American to head a reserve bank, said Monday that there’s merit to considering reparations as a way to counter the impact of racism and inequality in the U.S. Cleveland Fed President Loretta Mester last week wrote a letter condemning the murder of eight people in Atlanta earlier this month, six of whom were Asian women.

“Limiting opportunity because of race, ethnicity, or gender threatens the health of our economy,” Mester wrote.

The Fed’s research on the impacts of racism on the economy has drawn political ire before. Politicians have argued that this veers too far into the sphere of elected officials, but Fed policy makers have countered that monetary policy needs to serve everyone in the country, not just the majority.

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