In a recent speech at the IE University – Banco de España – Federal Reserve Bank of St. Louis Conference, Christopher J. Waller, a member of the Federal Reserve Board of Governors, made alarming comments dismissing the serious risks posed by climate change to the financial stability of the United States.
Waller, an economist nominated by former President Donald Trump and confirmed by the Senate in December 2020, has raised concerns with his illogical stance on the impending climate catastrophe.
“As Federal Reserve Governor Waller continues his service as a member of the central bank’s Board of Governors until January 2030, it is crucial for him to reassess his position and recognize the urgent need to address climate change because environmental catastrophe will absolutely have a harmful impact on the economy,” said New Jersey progressive advocate Lisa McCormick.
During his speech, Waller said, “Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States.”
“His statement flies in the face of overwhelming scientific consensus and fails to acknowledge the increasing evidence of climate-related disasters affecting economies worldwide,” said McCormick. “Waller’s refusal to recognize the unique and material risks presented by climate change is deeply concerning. It is incredibly dangerous for someone who has extraordinary influence over monetary policy to be so profoundly out of touch with reality that he cannot see the urgent need for action.”
Waller’s remarks highlight a dangerous disconnect between his role as a Federal Reserve governor and the pressing global climate crisis.
“While he acknowledges that the scientific community has established the reality of climate change, he downplays its significance and asserts that his primary focus should be on financial risks,” said McCormick. “However, by disregarding the financial risks associated with climate change, Waller demonstrates a failure to fulfill his responsibilities in ensuring the stability of the financial system.”
The Federal Reserve’s mandate includes promoting financial stability and avoiding crises, making Waller’s comments all the more perplexing.
“Climate change poses substantial risks to the economy, financial institutions, and the broader financial system,” said McCormick. “Extreme weather events, such as hurricanes and wildfires, can have a direct impact on property values, leading to potential losses for banks and other financial intermediaries. “
Moreover, the transition to a low-carbon economy can introduce new risks and uncertainties that Waller seems to overlook.
The Intergovernmental Panel on Climate Change (IPCC), an international body that assesses the scientific evidence related to climate change, has consistently emphasized the urgency of global warming and the need for immediate and substantial action to mitigate its impacts.
The IPCC’s latest reports say that immediate and substantial reductions in greenhouse gas emissions are necessary to limit temperature rise to well below 2 degrees Celsius, preferably 1.5 degrees Celsius.
“The IPCC’s latest reports say time is running out, and without swift action, we face severe and irreversible consequences,” said McCormick. “Transitioning to renewable energy, achieving net-zero emissions, and addressing social and economic dimensions are crucial for mitigating climate change’s impacts and ensuring a just and sustainable future.”
Waller’s assertion that climate-related risks are not unique or material enough to merit special treatment disregards the mounting evidence that climate change is already affecting economies and financial markets.
Studies have shown that physical risks, such as rising sea levels and extreme weather events, can drive down property values and pose threats to the stability of the financial system. Transition risks, associated with the shift to a more sustainable economy, can also disrupt industries and impact financial institutions.
His argument that economic agents are already adjusting behavior to account for climate risks fails to recognize the complexity and scale of the challenges ahead.
While some market participants may be factoring in climate risks, it is insufficient to rely solely on individual actions.
Systemic risks require comprehensive and coordinated efforts from policymakers and regulatory bodies, including the Federal Reserve, to mitigate potential damage to the financial system.
Waller’s comments also downplay the importance of addressing climate change as an immediate priority. By referring to climate risks as long-term and gradual, he ignores the urgent need for decisive action.
The increasing frequency and severity of climate-related events demand proactive measures to safeguard financial stability and protect communities from devastating losses.
The international community, including central banks and financial institutions worldwide, has recognized the significance of climate-related risks and taken steps to address them.
Waller’s stance contradicts the global consensus and places the United States at odds with other nations in tackling this critical issue.
It is essential for policymakers to prioritize climate-related risks, given the potential for far-reaching consequences on the economy and financial stability. Neglecting these risks jeopardizes the well-being of businesses, households, and the overall resilience of the financial system.