The Federal Reserve has a clear mandate to maintain stable prices and maximize employment. But the central bank often fails to ensure price stability. Its pandemic-era policies generated the highest inflation rates in 40 years, resulting in a 20 percent decline in the dollar’s purchasing power. Even now, price inflation persists, increasing for three consecutive months.
Despite the Fed’s mandate, central bankers are trying to expand their roles to social justice and environmental issues. The Fed’s latest directive, released Tuesday, tackles climate change. Joining with the Federal Deposit Insurance Corporation (FDIC) and Comptroller of the Currency, the Fed issued guidance on how banks should manage prospective climate risks.
The organizations direct banks to manage risk associated with firms threatened by the transition to a lower carbon economy. This direction will discourage banks from fossil fuel lending, reducing the industry’s productive capabilities and impacting domestic energy markets.
The guidance also suggests that banks conduct a “scenario analysis” for potential losses incurred from extreme climate events that could happen now or in a distant future – which means they will have to include long-dated speculative predictions in their risk assessments.
The Fed’s new interest in climate comes at a time when inflation is still almost double its two percent annual target. The central bank could not have chosen a worse issue to fixate on. Energy prices are a significant inflationary driver, and interventions against the fossil fuel industry put upward price pressure on an industry already facing war-related geopolitical risks.
Congress poses another obstacle to the Fed’s inflation efforts. As interest rates increase, borrowing becomes more expensive, and the federal government’s excessive spending has created a cycle in which it must continuously borrow more to finance itself.
The government has increased the national debt by over $600 billion in the last 30 days, a rate that will put total debt at $40 trillion less than a year from now. Economists refer to this process as a “debt spiral.”
Recent U.S. government credit downgrades and the bond markets’ loss of confidence suggest that lenders are losing trust. If traditional institutions no longer finance the government, the responsibility will ultimately fall on the central bank, which will likely respond by simply printing more money.
Climate change policies that hinder domestic energy production and disrupt markets not only run counter to the Fed’s mandate but are even out of touch with younger generations’ priorities, which lean progressive. A recent Epson Research report, which surveyed over 30,000 people, found that participants in the 16-29 age bracket claim the most important issue they face today is rising prices. Almost half of those aged 16-29 were optimistic that they won’t be personally affected by climate change.
From central bank digital currency (CBDC) pilot projects to DEI initiatives aimed at making its monetary policies more “inclusive,” the Fed is no longer an independent institution constrained by rules. Instead, it is a political entity like any other. Directing banks on climate change is yet another stain on its credibility.
At best, the Fed’s recent forays represent a waste of taxpayer funds. At worst, they can backfire and threaten the central bank’s price stability and employment mandate.
Geopolitical and domestic risks make it increasingly difficult for the Fed to temper inflation and maintain price stability. Attacking domestic energy by imposing climate change policies is out of scope with its mandate, out of sync with voters and calls into question the Fed’s commitment to helping Americans.
David Waugh is a business development and communications specialist at Coinbits. He previously served as the managing editor at the American Institute For Economic Research.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.